Improving your credit score

Hippo's quick bites:

• Your credit score helps lenders assess how you’ve managed credit in the past.

• In South Africa, you can get one free credit report per year from each registered credit bureau. 

• You have the right to dispute incorrect information.

• Your score is not fixed forever.

• You can improve your score over time by paying on time, reducing high balances, and avoiding too many applications at once.

• You need to take out credit to have a credit score.

What is a credit score, and why does it matter?

Your credit score functions as a financial risk assessment, offering potential lenders an objective ranking of your financial standing and viability as a borrower, which they use to determine whether to lend and what interest rate to offer. This ranking is built upon the consistent management of your current credit over time, measuring your trustworthiness to repay a loan.

Essentially, your credit score communicates to lenders:

• Whether your payments have generally been made on time.

• How you are currently managing your credit accounts.

• If your recent financial behaviour indicates you are a reliable candidate for a loan or credit extension, with a good credit score improving approval chances and potentially saving you money in the long run.

Who checks your credit score, and when?

Your credit score is checked when you apply for credit, whether that’s through a bank, retailer, or another credit provider as part of the application process, including major borrowing like financing a first car or making a student loan application. South African law also gives you rights around confidentiality and the correction of inaccurate information, so your credit profile is important.

If you want lekker things but you need to pay them off, make sure your credit score is also lekker.

Where can you check your credit score in South Africa?

Start by checking your credit profile through ClearScore South Africa. It gives you free access to your Experian credit score and report, which makes it easier to see what lenders may see before you apply for credit. You just enter your details to check it annually, review your credit history and credit record, and get a clearer picture of where you stand while spotting anything that needs attention early.

NOTE: If something on your report looks wrong, deal with it straight away. Errors like incorrect late payments or unfamiliar accounts can drag your score down for no reason, so raise credit disputes with credit bureaus such as TransUnion as soon as possible.

How is your credit score calculated on your credit report?

There are a few factors, and some weight more than others.

• Payment history is a big one, because lenders want to see whether you pay regularly and on time; it accounts for 35% of your FICO® Score, so missed payments or a default can have a negative impact.

• Debt levels and account balances also matter, especially on revolving credit*. This looks at the balance compared with your available credit on revolving accounts and makes up 30% of your FICO® Score, so aim to keep it below 30%.

• Your recent applications are another signal, because too many in a short space of time can make you look financially stretched. Each new application can place a hard inquiry on your credit report and may temporarily lower a low score further.

Revolving credit differs from a standard loan where a fixed amount is borrowed once in that it is a type of credit you can repeatedly use, repay, and then reuse the credit amount you have repaid; an example is a credit card account, while secured credit is often linked to finance for a car.

How can you achieve a good credit score?

Your credit score check gives you a factual starting point instead of relying on memory, the admin of trawling through your account statement payments and guesswork. Below are some small things to consider that will make a big difference to your credit score over time.

• Pay every account on time by setting autopay for your bills and at least the minimum due, including your credit card bill.

• Keep your balances under control by making multiple payments throughout the month instead of waiting for the due date.

• Be selective about new credit applications.

If you're building credit, consider becoming an authorised user, applying for a starter card, or opening a credit-builder account.

It also helps to monitor your report regularly. That lets you track progress, spot potential fraud, and see whether your credit cleanliness habits are actually moving the “need something, can’t pay for it once off” needle. Its maintenance of your financial reputation helps protect your finances, and stronger credit health can save money over time through better rates.

What credit applications should you avoid?

• Missed payments on any of your credit accounts. Late payments raise red flags and can leave a negative listing on your credit rating.

• Maxing out your credit on accounts. Carrying a high balance can hurt your credit rating and make it look like you have champagne tastes on a Pepsi budget and are spreading your budget too thinly.

• Trying for too many applications in a short period. Slow down, compare carefully, and only apply for what you actually need, because too many applications can also affect your credit rating.

What if you are already struggling with debt?

The NCR advises consumers who are having trouble servicing debt to contact their creditors early and discuss affordable repayments before they fall behind. A repayment plan should start with reviewing all your current debt, expenses, and available money, then cutting nonessential costs and sticking to a strict budget. Do not wait until you’ve skipped several payments and the problem has grown. A debt consolidation loan may also help with multiple debts by combining them into one payment over a longer period, but it should be considered carefully. If you are genuinely over-indebted, debt counselling may help. It is a formal process under the National Credit Act, handled by a registered debt counsellor, and it is meant for people who need real relief, not another quick fix.

Improving your credit score is usually less about one dramatic move and more about doing the basics well.

• Check your report.

• Correct mistakes.

• Pay on time.

• Reduce pressure on your accounts.

• Apply for credit thoughtfully.

• Ask for help early when things get tight.

• Keep older credit accounts open where possible to help preserve a long credit history, since this supports the average age of your accounts.

Start with the free step first. Pull your credit report, see where you stand, and take one practical action this week.

It’s important to remember that your credit score is in your hands, and keeping track of it is an essential part of financial health. More than ever before, consumers are better able to access credit in a safe, responsible and transparent market. Be it for a car, a home or a small venture, when you take out a loan and pay it off responsibly, this is an opportunity to get on the path to financial prosperity and greater independence. To find the right loan for you, compare Personal Loans to make sure you’re getting decent interest rates, a fair deal and value for your money from an accredited provider.

This article is for informational purposes only and does not constitute financial, legal, medical or insurance advice. Hippo is a comparison site helping you evaluate quotes from trusted South African insurers. Always review policy details before making changes. Quotes are risk profile dependent and subject to annual review. No fees are charged for using Hippo’s comparison service. HAS (Pty) Ltd and HCS (Pty) Ltd are authorised FSPs. Terms and conditions apply.