Cracking the Code on What a Credit Score Is and How It Affects You
There’s a moment in every adult’s life when they hear the words “credit score” and feel a twinge of anxiety. Maybe you’re applying for your first car loan or trying to get a store account approved. Whatever the situation, these words often feel like something mysterious is influencing your financial future behind the scenes.
This beginner’s guide will break down what is a credit score and why it matters!
Credit Score 101
At its core, a credit score is a number that shows how reliable you are when it comes to borrowing money and paying it back. Think of it like a financial reputation. Just like people build trust over time through their actions, your credit score is shaped by how you manage debt. Do you pay your accounts on time? Have you skipped payments? Are you maxing out your credit cards? These habits add up and tell a story of how risky it is for a lender to let you borrow.
In South Africa, the credit score ranges from 0 to 850. The higher the number, the better. A score above 680 is considered good to excellent, and can help you get approved for loans, qualify for lower interest rates, and rent a place to stay. A poor credit score ranking below 527 can hold you back, making it harder to access credit when you need it most.
How is a Credit Score calculated?
All your financial information is gathered from various credit providers, such as banks, retailers & etc, by credit bureaus. They take into account the following factors when assigning you a credit score:
- Payment History: Do you pay your bills on time? Missed or late payments can hurt your score quickly.
- Credit Usage: If you’re constantly using most of the credit available to you, it might look like you’re relying too heavily on borrowing.
- Length of Credit History: The longer you’ve had accounts open and in good standing, the better it reflects on you.
- Types of Credit: A mix of accounts, like store accounts, personal loans, and credit cards, shows lenders you can manage different types of debt.
- Recent Applications: Applying for lots of credit in a short time can make it seem like you’re in financial trouble.
Why does a good Credit Score matter?
A credit score sits quietly in the background but can hugely affect real-life things. Most credit bureaus offer one free credit report a year. Use it. It’s your starting point.
- Loan Approvals – When you apply for a loan, lenders will check your score to see if you’re a safe bet.
- Interest Rates – A good credit score can help you qualify for lower interest rates, saving you money in the long run.
- Rental Applications – Most landlords and agencies will check your credit score to estimate the risk of having you as a tenant.
- Job Considerations – Some employers may need to review your financial history in industries where money handling is critical.
How can you build or improve your Credit Score?
If you’re just starting out, here are some practical steps to grow your credit score:
- Pay Bills on Time
- Keep Debt Low
- Check Your Credit Report
- Limit Credit Applications
- Build a history
Remember, changes to your credit score take time; be patient and focus on building good financial habits.
Knowledge is power
Understanding what is a credit score and how it works gives you more control over your financial life.
Here are a few alternative sites to check your credit score:
- TransUnion: Visit the TransUnion South Africa website.
- Experian: Visit the Experian South Africa website.
- ClearScore: Visit the ClearScore website.
If you’re looking to take that next step in your financial journey, whether it’s a personal loan or just some guidance, Atlas Finance is here to help. Visit Atlas Finance to learn more.
