Factors that affect your credit score

A credit score, and your credit report, plays a significant role in your financial life. If you’re making big financial moves – like purchasing your dream home – you will need a credit score. A good credit score is what lenders use to approve or decline any credit application you make. It also affects the loan terms and conditions you receive. So, it's important that you know the factors that affect it, how they affect your credit score, and the steps you can take to improve your credit health. In this blog, we're taking you through the top 5 factors that play a significant role in how your credit score is calculated.

  1. Payment History
    Your payment history easily makes up 35% of your overall credit score. A lender needs to figure out whether or not the money that they lend to you will be paid back. To do this, they will look at your credit history, paying attention to your bill payment habits – whether or not you have a history of paying your bills on time each month, how many times you have defaulted and whether or not you have judgements in your name. So, if you have a history of skipping some payments or paying late, that will impact the score you get in this category.
  1. Total debt you have
    The total number of credit accounts you have make up 30% of your credit score. If you're making your payments on time, but you have a very high amount of debt, it will negatively impact the score you will have. What is calculated here is your total debt against your income. Additionally, your credit utilisation ratio will be used to as a factor to determine your score. For example, if you have a credit limit of R10 000 on your credit card, and you have used 80% of that limit, that might work against you. It is advisable to keep your available credit as high as possible – meaning you use less or work at paying your credit account better so that your credit utilisation ratio is at least at 30%.
  1. Length of credit history
    How long is your oldest loan or credit card? The average life cycle of your credit accounts is a factor used to calculate your credit history. It makes up 15% of your overall credit score. The longer you have had an account, whether paid off or not, shows lenders that you are a responsible credit user and you can be trusted.


  1. Types of credit
    There are various types of credit. These include revolving accounts, like credit cards, as well as loans and vehicle instalments. The types of credit you have plays a big role, making up 10% your overall credit score. It helps to have a good mix of credit that is managed well and paid on time.
  1. New credit accounts
    How many new loans and credit accounts have you applied for in a short period of time? This will make up 10% of your credit score. Lenders look at the soft and hard inquiries on your name during a specific period to determine whether or not you can manage your money. Seeing too many hard inquiries might indicate that you're desperate for money or irresponsible with finances. It's advised that you learn which credit applications require a "hard pull", because that is what plays a significant role in building, or ruining, your credit health.

How you handle credit and your overall finances plays a significant role in determining your overall credit score. Re-evaluate your financial habits and begin making changes that will have a positive impact on your credit health, starting today.

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