Your credit score explained in just 5 minutes

Your credit score explained in 5 minutes
Understanding Credit Scores in South Africa: A Beginner's Guide

Your credit score is one of the most important factors that determine your ability to access credit, loans, and other financial products.

It’s a three-digit number that represents your creditworthiness and is used by lenders to assess your risk as a borrower. A good credit score can help you get approved for loans and credit cards, while a poor credit score can make it difficult to access credit or result in higher interest rates and fees.

What credit scores are and how they work

Credit scores are calculated based on a variety of factors, how much debt you have, how long you've been taking out credit for, types of credit accounts, and recent credit inquiries. Credit bureaus collect and compile this information to generate your credit score.

Why is your credit score important?

Your credit score is a key factor that lenders, credit card companies, and insurance providers use to assess your creditworthiness.

Here are some reasons why your credit score is important:

  • Loan and credit card applications: A high credit score can increase your chances of being approved for a loan or credit card. Conversely, a low score can lead to rejection or less favourable terms.
  • Interest rates: Your credit score can impact the interest rates you are offered on loans and credit cards. A higher score may lead to lower interest rates, while a lower score may result in higher interest rates and more expensive borrowing.
  • Insurance premiums: A higher score may result in lower premiums, while a lower score may result in higher premiums.

In South Africa, there are four credit bureaus: TransUnion, Experian, XDS, and Compuscan.

Each bureau has its own scoring model, but they generally use a range of 0 to 999, with a higher score indicating better creditworthiness. In this article, we will explain how credit scores are calculated, why they are important, and how you can improve your credit score to achieve your financial goals.

Let’s take a closer look at each of these and define the score ranges so you’ll know exactly where you’re sitting.

South Africa’s four credit bureaus

Largest credit bureau: TransUnion

TransUnion is the largest credit bureau in South Africa, with data on over 24 million credit-active consumers. They use a scoring model called the TransUnion Score, which ranges from 0 to 999. The higher the score, the lower the risk of default.

  • Poor: 0-567
  • Fair: 568-610
  • Good: 611-640
  • Excellent: 641-999

A score of 641 and above is considered excellent and indicates a low risk of default. Consumers with excellent scores are likely to be approved for credit and are likely to receive favorable interest rates and terms.

A good score (611-640) indicates a moderate risk of default and may result in higher interest rates and less favorable terms.

Fair and poor scores indicate a high risk of default, and consumers with these scores may have difficulty accessing credit or may be required to pay higher interest rates and fees.

The runner up: Experian

Experian is the second-largest credit bureau in South Africa, with data on over 16 million credit-active consumers. They use a scoring model called the Experian Score, which ranges from 0 to 999. The higher the score, the lower the risk of default.

  • Poor: 0-527
  • Fair: 528-655
  • Good: 656-699
  • Excellent: 700-999

An excellent score (700 and above) indicates a low risk of default and is likely to result in favorable interest rates and terms. A good score (656-699) indicates a moderate risk of default and may result in slightly higher interest rates and less favorable terms.

Fair and poor scores indicate a high risk of default, and consumers with these scores may have difficulty accessing credit or may be required to pay higher interest rates and fees.

The third largest in SA: Compuscan

Compuscan is the third-largest credit bureau in South Africa, with data on over 10 million credit-active consumers. They use a scoring model called the Compuscore, which ranges from 0 to 1000. The higher the score, the lower the risk of default.

  • Poor: 0-525
  • Fair: 526-655
  • Good: 656-750
  • Excellent: 751-1000

An excellent score (751 and above) indicates a low risk of default and is likely to result in favorable interest rates and terms. A good score (656-750) indicates a moderate risk of default and may result in slightly higher interest rates and less favorable terms.

Fair and poor scores indicate a high risk of default, and consumers with these scores may have difficulty accessing credit or may be required to pay higher interest rates and fees.

The smallest credit bureau in the country: XDS

XDS is the smallest of the four credit bureaus in South Africa, with data on over 5 million credit-active consumers. They use a scoring model called the XDS Score, which ranges from 0 to 999. The higher the score, the lower the risk of default.

  • Poor: 0-549
  • Fair: 550-619
  • Good: 620-680
  • Excellent: 681-999

An excellent score (681 and above) indicates a low risk of default and is likely to result in favorable interest rates and terms.

A good score (620-680) indicates a moderate risk of default and may result in slightly higher interest rates and less favorable terms.

Fair and poor scores indicate a high risk of default, and consumers with these scores may have difficulty accessing credit or may be required to pay higher interest rates and fees.

How to check and understand your credit score

It's important to regularly check your credit score to stay on top of your creditworthiness. Here are some steps to check your credit score:

Obtain your credit report from credit bureaus

You can obtain a free credit report from each of the credit bureaus (TransUnion, Experian, XDS, and Compuscan) once per year. You can also purchase additional reports if needed.

Interpret your credit report

Your credit report will include information about your credit history, including your payment history, outstanding debts, and credit inquiries. Review your report carefully to ensure it is accurate and to identify areas where you can improve your credit score.

Check your credit score regularly

It's a good idea to check your credit score at least once a year, but you may want to check more frequently if you are actively working to improve your credit. Some credit card companies and other financial institutions also offer free credit score monitoring services to their customers.

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