Introduction

Your credit score is more than just a number—it’s a key factor that influences your financial future. Whether you’re applying for a loan, renting a home, or even getting a new job, a good credit score can open doors, while a poor one can hold you back. But what exactly does your credit score mean, and how can you improve it? In this guide, we break down the essentials of credit scores and provide actionable tips to boost yours.

What is a Credit Score?

A credit score is a three-digit number that represents your creditworthiness—essentially, how responsible you are with borrowed money. It is calculated based on your credit history and is used by lenders to determine whether to approve loans, what interest rates to offer, and even the credit limit you qualify for.

How is a Credit Score Calculated?

Credit scores are determined by several factors, typically weighted as follows:

• Payment History (35%) – Have you paid your bills on time? Late or missed payments negatively impact your score.
• Credit Utilisation (30%) – The percentage of your available credit that you’re using. A lower ratio (below 30%) is better.
• Credit History Length (15%) – The longer your credit history, the better your score.
• Types of Credit (10%) – A mix of credit accounts, such as credit cards, mortgages, and car loans, can be beneficial.
• New Credit Inquiries (10%) – Applying for multiple credit accounts in a short period can lower your score.

Example: If you have a R50,000 credit limit and have used R10,000, your credit utilisation is 20%, which is considered healthy. However, if you max out your credit cards, your score will drop.

Why Your Credit Score Matters

A good credit score can make life easier in many ways:

• Lower Interest Rates – You qualify for better interest rates on loans and credit cards.
• Higher Loan Approval Chances – Lenders are more likely to approve your loan applications.
• Better Rental & Employment Opportunities – Some landlords and employers check credit scores before approving applications.
• Lower Insurance Premiums – Insurers may offer better rates to individuals with high credit scores.

Scenario: Thabo and Lerato both apply for car loans. Thabo has a credit score of 750, while Lerato’s score is 600. Thabo gets a 7% interest rate, while Lerato gets 15%. Over five years, Lerato pays significantly more in interest just because of a lower credit score.

How to Improve Your Credit Score

Improving your credit score takes time, but these strategies can help:

1. Pay Your Bills on Time

Your payment history is the biggest factor in your credit score. Set up reminders or automate payments to avoid late fees.

2. Reduce Your Credit Utilisation

Try to keep your credit usage below 30% of your total limit. Paying down high balances can quickly improve your score.

3. Avoid Opening Too Many Accounts at Once

Each time you apply for credit, it triggers a hard inquiry, which can slightly lower your score. Apply for new credit only when necessary.

4. Keep Old Accounts Open

The longer your credit history, the better. Even if you don’t use an old credit card, keeping it open can boost your score.

5. Check Your Credit Report for Errors

Mistakes on your credit report can hurt your score. Request a free credit report and dispute any inaccuracies.

Example: If you notice an incorrect late payment on your report, disputing it and having it removed can give your score an immediate boost.

Final Thoughts

Your credit score plays a vital role in your financial well-being, but it’s not set in stone. By understanding what affects your score and taking proactive steps to improve it, you can unlock better financial opportunities. Start today, and take control of your credit future!

Disclaimer: This article is for informational purposes only and should not be construed as financial advice. Splendi does not provide personalised financial, investment, legal, or tax advice. Always consult with a qualified financial advisor for guidance tailored to your individual circumstances.