A good credit score is of paramount importance in South Africa’s financial landscape, playing a pivotal role in determining an individual’s access to credit, interest rates, and overall financial well-being.
Banks and lending institutions heavily rely on credit scores to assess a borrower’s creditworthiness. A high credit score signifies responsible financial behaviour and a history of timely repayments, leading to favourable loan terms and lower interest rates.
In South Africa, where credit is essential for major purchases like homes and vehicles, a good credit score can make the difference between approval and rejection for loans. Moreover, a strong credit history can influence rental applications, insurance premiums, and even job opportunities, as some employers evaluate creditworthiness to gauge financial stability.
Maintaining a good credit score demands disciplined financial management, including paying bills on time, keeping credit card balances low, and avoiding excessive debt. Regularly monitoring one’s credit report for errors and inconsistencies also contributes to a healthy credit profile.
What is a credit score and why it’s important
According to debt consultancy firm Debt Rescue, in South Africa, credit scores range from 330 to 830, with higher numbers making you a very attractive person in the eyes of lenders and banks.
Your score tells prospective lenders how much of a ‘risk’ you are in terms of your past debt repayment behaviour.
According to the firms, credit scores are seen as follows:
- 599 and below – Very poor
- 610 to 649 – Fair
- 650 to 699 – Good
- 700 to 750 – Very good
- Over 750 – Excellent
This scale varies slightly depending on which credit union you use. According to MortgageMarket.co.za, “the minimum credit score for a home loan in South Africa is around 640. A score of 600+ will give you a fair chance of home loan approval – although this may vary according to which bank you use.”
Debt Rescue also highlighted what factors influence your credit score, which are: your payment history (35%), credit utilisation (30%), length of credit history (15%), types of credit used (10%), and new credit inquiries (10%).
Your credit score is a living number that fluctuates depending on your debt repayment behaviour. Practically, this means that the better your credit score, the better the loans and interest rates you can access.
If you have a good credit score, lenders will usually give you loans at the prime lending rate, which is the interest rate used by banks and is fixed, so it won’t change unless the repo rate changes. Customers with very good and excellent credit scores may get prime -1% or -2% and customers with poor credit may get up to prime +3.
Tips to improve your credit score
According to Debt Rescue, there are several things you can do to improve your score, such as:
- Pay your bills on time – Set up reminders or automatic payments if you’re the forgetful type;
- Knock down that debt – Prioritise those high-interest loans and start chipping away;
- Easy on the new credit – Only apply when it’s really necessary, and avoid a bunch of applications in a short time.
- Keep an eye on your credit utilisation – Aim for less than 30% of your credit limits, and you’ll be golden.
Click here to read the full article: https://businesstech.co.za/news/lifestyle/715026/this-is-considered-a-good-credit-score-in-south-africa-and-how-to-improve-it/
