As the new year starts, there are two types of people who need to worry about their credit scores.
Those who have no debts whatsoever, and those who have way too much unmanageable debt.
This is according to Quinton Ramohlabi, who speaks to Drum on behalf of the National Debtors Advisors.
“Not having debt means that your credit score won’t increase monthly because there’s nothing that you are paying that shows that you are a good payer.
“We don’t encourage people to not have debt. But you have to have debt in order to survive and to get more debt and boost your credit profile."
If you have never had – or have no – debt, you can apply for a credit card, but make sure that you don’t use it daily. It should be for big purchases or emergencies, says Quinton.
“Most people [who approached the NDA for help] in the past two years have been relying on their credit cards to make daily purchases.” This leads to many consumers being stuck in a cycle of debt.
He says the other bad financial habits that have gotten many consumers in over their heads in the past couple of years is failure to budget – and stick to it – and living beyond their means.
These habits can find you drowning in debt with a credit score that makes credit providers wary of advancing any further debt to you.
A good credit score is generally anything above 670, Quinton explains.
“Most of the time credit providers look for a minimum rating of 670. That’s where they basically consider your credit score to be good for them to trust you. And, of course, they go through your credit history to see if you have defaulted on any repayments. So if your credit history is not good enough, then unfortunately you won’t be able to qualify [for loan approvals].”
The score appears in a credit report that you can access for free once a year.
It factors in “your employment history; your income and affordability assessments as well as the type of credit for which you are applying”, according to consumer credit reporting agency TransUnion.
“The information in your credit report is used by most credit and service providers as an important contribution to the development of their own credit risk score.”
The score keeps increasing if you are a good payer and have generally good financial habits. The higher the score, the more likely you are to find yourself in “a stronger bargaining position with the bank, and [it] improves your chances of getting a favourable interest rate on your home loan, saving you money in the long-term”, according to home loan originator Ooba.
Your credit score is a three-digit number ranging from 0 to 999.
- 670+ = excellent
- 650 – 669 = good
- 634 – 649 = average
- 618 – 633 = below average
- Below 618 = very poor
The best way to increase your credit score is to start paying your debts regularly, even if it means negotiating to pay less but over a longer repayment period.
Check your credit score
Visit the websites of one of these credit bureaus:
TransUnion at www.transunion.co.za
Compuscan / Experian at www.experian.co.za
XDS at www.xds.co.za
Each consumer gets one free credit score report per annum. If you want to access your report more than once a year, you’ll have to pay for the second one or go ClearScore, or Old Mutual’s CreditView for a free second report.
Jonathan Hurvitz, CEO of Teljoy shares these top four tips with Drum on how to owe less money in 2023:
1. Have a clear picture of what you can afford each month
Judging affordability is about more than just looking at your net income and deciding on the most amount of cash you can spend at one time. Your current obligations, future financial goals (like debt elimination), potential emergencies and general savings need to be factored in.
Put together a budget and be sure to factor in all of your expenses to make sure that you’re able to meet your monthly obligations.
3. Assess purchasing methods
Although subscription, or rent-to-own, has been around for many decades, it is woefully underutilised, but offers some of the best benefits.
4. Read the fine print
The vast majority of credit offers on the market come with stiff penalties, even those that claim no interest. For instance, some will offer “four easy payments over six weeks with no interest”, but should a payment be missed, you’ll be liable for heavy penalties.