What you need to know about credit scores

Credit can be a tool for financial well-being. Managing it well gives you more options and better deals. Ignore it, and it could cost you – literally.

Data collected by the National Credit Regulator shows that more than 36% of South Africa’s 28 million credit-active consumers have impaired credit records. Of these, 22% are three months or more in arrears, 11% have “black-listings” (or “adverse listings”), which means a history of late payments or defaults, and 3% have judgments and administration orders.

Mariné van Brakel, the deputy chief executive of RCS, believes that financial education is the key to South Africans’ taking control of their credit health. Yet, she adds, many South Africans lack basic knowledge about how credit works and how to use it effectively.

“Studies have shown financial literacy to be a foundational element in effective debt management. By understanding how credit scores work and what affects them, South Africans can actively improve their financial standing by using credit to their advantage,” she says.

Why your credit score matters

A good credit score can open doors to better loan terms, lower interest rates, and a wider array of financial products, explains Van Brakel.

“RCS and other credit providers use your score as a key indicator of risk, meaning that a higher score often results in more favourable conditions. Understanding and managing your credit can be the difference between financial stress and achieving your long-term goals.”

Beyond personal finance, credit also plays a crucial role in economic empowerment. Access to responsible credit allows individuals to invest in their futures, whether through home ownership, education, or entrepreneurship. However, reckless lending and over-indebtedness remain major challenges in South Africa.

“Understanding credit is not just about avoiding debt; it’s about using it as a tool to enhance financial stability,” van Brakel explains. “By taking proactive steps to manage credit responsibly, South African consumers will be better positioned to build a stronger financial foundation for their future,” she says.

What is considered a good credit score?

A credit score is a three-digit number that reflects your creditworthiness – essentially, how likely you are to repay the money you borrow. In South Africa, this score typically ranges from 300 to 850, with a higher score indicating better credit behaviour.

But what exactly constitutes a “good” credit score?

According to a post by Cape Town Legal Consultants, although different credit bureaux use varying scoring models – such as FICO and VantageScore – a score of about 680 or higher is generally regarded as a sign of responsible credit behaviour.

Credit bureaux in South Africa, such as TransUnion, use the following breakdown to classify scores:

• Excellent: 767 to 999
• Good: 681 to 766
• Favourable: 614 to 680
• Average: 583 to 613
• Below average: 527 to 582
• Unfavourable: 487 to 526
• Poor: 0 to 486

In general, a credit score above 680 falls within the “good” to “excellent” range and improves your chances of being approved for loans or credit with favourable terms.

Consumers should also be aware that they have two main types of credit scores: FICO and VantageScore.

The FICO score, developed in 1989, has long been the industry standard.

In 2006, the three major global credit bureaux – Experian, TransUnion, and Equifax – introduced VantageScore as an alternative model. Both systems use a scoring range from 300 to 850, where a higher score indicates stronger creditworthiness.

Although the two models generally produce similar outcomes, they calculate scores differently and place emphasis on different aspects of your credit profile.

FICO focuses heavily on credit habits, rather than the total amount of credit used. The model weights different components as follows:

• 35%: payment history (for example, late or missed payments)
• 30%: amounts owed
• 15%: length of credit history
• 10%: credit mix
• 10%: new credit inquiries or accounts

VantageScore, on the other hand, is more focused on your overall credit usage and balance. Its influence breakdown includes:

• Most influential: total credit usage, available credit, and balances
• Next most influential: credit mix and experience
• Moderately influential: payment history
• Less influential: age of credit history
• Least influential: new accounts opened

Despite their differences, a good score in one model typically corresponds with a good score in the other.

What factors affect your credit score

A credit score is shaped by several factors, including:

• Payment history. This is essential, because consistently making the minimum repayments on time demonstrates positive financial habits. To avoid your score being negatively impacted by late or missed payments, you can set up automatic debits or reminders.
• Credit utilisation. This measures the amount of your available credit you are using, calculated by comparing your outstanding balance with your total credit limit.
• Length of credit history. The longer your credit history, the better, because it provides a track record of how you handle debt over time. To build up a credit history, start small by applying for credit products such as a store card or a personal loan.
• Recent credit applications. Applying for multiple new accounts or loans within a short period can be seen as risky behaviour and may negatively impact your score.

“There are many moving parts that make up a credit score, and each of these factors contributes to a holistic picture of your financial behaviour and trustworthiness,” explains Van Brakel.

How to rehabilitate your credit score

According to Van Brakel, the first step to better credit management is to keep track of your credit score.

“It’s important to look for inaccuracies and dispute any errors, as these can impact your creditworthiness,” she adds.

Once you know where you stand, the next step is to ensure you always make repayments on time and work towards reducing outstanding debt as quickly as possible. By budgeting effectively, planning your spending, and avoiding unnecessary credit applications, you can steadily build a stronger credit profile.

To enhance your credit score:

• Pay bills on time. Consistently meeting payment deadlines is crucial.
• Manage debt wisely. Keep your credit utilisation low and avoid accumulating excessive debt.
• Limit new credit applications. Only apply for new credit when necessary to minimise enquiries.
• Monitor your credit report. Regularly check your credit report for errors and dispute any inaccuracies.

South Africans can check their credit scores for free through several reputable credit bureaux and financial platforms. Major credit bureaus such as TransUnion (www.transunion.co.za), Experian (www.experian.co.za), and XDS (www.xds.co.za) offer easy access to credit reports.

Many banks – including Nedbank, FNB, and Capitec – also provide clients with credit score information via their online banking platforms.

In addition, RCS, in partnership with the Welltec Group, offers a convenient option through the Credit Gateway platform. With a valid South African identity number, you can obtain a free credit report and score in under five minutes. Importantly, checking your credit score this way will not negatively affect your credit rating.