If you’ve ever applied for a store account, bank account, or any type of loan, your credit score may not have come up in conversation directly, but behind the scenes, it would have informed the finance team’s discussions about whether to approve or decline your application. 

The influence of your credit score on most financial decision-making makes it essential for you to manage it proactively. In this article, we break down the credit score to its basics to help you build yours up to achieve your best possible score.  

ALL (AND MORE) ABOUT THE CREDIT SCORE:

A credit score is a three-digit number that reflects your creditworthiness. It indicates how reliable you are when it comes to managing credit and repaying debt. 

Credit bureaus like XDS, TransUnion and Experian compile your credit report and calculate your score. Scores from XDS (which is where we get your score) typically range between 300 and 950, with higher scores indicating better creditworthiness. A high credit score suggests you are a low-risk borrower, which can make it easier to secure loans or credit at favourable terms. On the other hand, a low credit score may indicate higher financial risk, which can lead to higher interest rates or loan denials.

The Finance365 team considers this number to be as critical as your ID number as it is a tool used by most financial decision-makers to gauge your reliability. 

For example, while lenders use it to determine whether to approve your loan application and at what interest rate, landlords may check your score to ensure you’re likely to pay your rent on time. Employers in some industries also review credit scores to assess financial responsibility, especially for roles involving money management. 

Even service providers such as cellular contract providers could consider it in assessing whether you are eligible for a new contract.  

Several factors influence the calculation of your credit score and understanding these can empower you to manage and improve your score effectively.

One of the most important components is your payment history, which accounts for  approximately 35% of your score:  This measures your reliability in paying off debts on time. Consistently meeting payment deadlines for credit cards, loans and bills can significantly boost your score. 

On the flip side, missed payments, defaults or events like bankruptcy can negatively affect your creditworthiness.

Another critical factor is your credit utilisation ratio, making up about 30% of your score: This refers to the percentage of available credit you’re using. For example, if you have a credit card limit of R10,000 and have spent R2,000, your utilisation rate is 20%. 

Financial experts recommend keeping this ratio below 50% to maintain a healthy credit score, as a lower utilisation rate indicates responsible credit management.

The length of your credit history, contributing approximately 15%, also plays a role: A longer credit history generally helps your score, as it provides lenders with more data to evaluate your financial behaviour. This is why it’s beneficial to keep older credit accounts open, even if you’re no longer actively using them.

Your credit mix, which accounts for around 10% of your score, is another key aspect: Having a variety of credit types, such as credit cards, home and car loans demonstrates your ability to manage different forms of debt effectively. 

Lenders view this diversity as a sign of financial responsibility.

Finally, new credit inquiries make up about 10% of your score: Every time you apply for a new line of credit, lenders perform a “hard inquiry” on your credit report, which can temporarily lower your score. Frequent applications within a short period may signal financial stress to lenders, so it’s wise to apply for credit only when necessary.

Ready to make your credit score matter to the max for your money? You’ve got nothing to lose. Remember, your credit score isn’t just another number. It’s a reflection of how well you manage your money and so, it’s a critical factor in determining the status of your financial future. 
Check in with your score here. With us, it is simple and free, and don’t be afraid to ask our financial wellness coaches to join your journey because your financial journey doesn’t have to be a solo ride.

Take the next step by checking your credit score today! Don’t forget to leverage Finance365’s free alert service to stay on top of changes while you improve it. 

Whether you’re saving for a new car, planning for a dream home or gearing up for a once-in-a-lifetime vacation, Finance365’s unlimited “soft” credit checks won’t impact your score and can help you reach your goals faster.

Start your journey toward better credit right now. Take control with Finance365 and open the door to the future you’ve always wanted.