Credit Score

A credit score is a number indicating how you handle Debt. Lenders use it to assess the risk of lending to you when you apply for loans, credit cards etc. A higher credit score means you’re a lower-risk borrower, making it easier to get loans with better interest rates.

Why should I care?

Do you want to give R150 000 to the needy banks when you don’t have to? No, I didn’t think so. 

Difference between 11 and 10% interest rate on a R1 million home loan:

How to build your credit:

If you do not have a credit score, get a credit card. If you can’t get a credit card, my preference is a clothing account and buy some underwear which you will pay off in full in 1 month. This just needs to register debt on your name to kick start your credit score journey. 

Once you get your credit card, use this as a debit card. I suggest starting off to use it for mandatory expenses such as fuel, and eventually running most of your day to day via the credit card. 

*VERY IMPORTANT*

You need to pay it off in full every month. This is done by setting your account to take the money (debit) from your bank account according to the Statement Balance. Leave it to debit the money every month by setting your credit card a max swiping budget that you need to according to the budget you’ve made. 

Example:

I earn 10000:

50 – Needs is 5000, which goes off the credit card

30 – Wants is 3000, which goes off the credit card

20 – Savings/Investments are set to automatically transfer 2000 whenever I get paid. 

Therefore, I will have a max budget on my credit card to 8000. Manage your spending accordingly.

How is a Credit Score Calculated?

Your credit score is built from the information in your credit report. 

1. Payment History (35%) – Pay Your Damn Bills

This is the most important factor. If you miss payments, your credit score tanks. It’s that simple. Lenders want to see that you pay what you owe, on time, every time. One missed payment? No big deal. Make it a habit? Now we’ve got a problem.

2. Credit Utilization (30%) – Don’t Max Out Your Card

This is how much of your available credit you’re actually using. Maxing out your credit card and paying only the minimum? Terrible idea. Your credit utilization should be below 30%, meaning if you have a R10,000 limit, don’t carry a balance over R3,000. Ideally, keep it even lower.

3. Length of Credit History (15%) – The Longer, The Better

The longer your credit accounts have been open, the better. This is why closing old credit cards can hurt you (unless they have annual fees that aren’t worth it). Your credit history is like trust—it takes time to build.

4. Credit Mix (10%) – Different Types of Debt Matter

Having a mix of credit types (credit cards, car loans, home loans, personal loans) can help. This shows lenders that you can handle different kinds of debt responsibly. But listen—do not take out loans just for the sake of “building credit.” That’s stupid.

5. New Credit (10%) – Stop Applying for Every Card You See

Every time you apply for new credit, it results in a hard inquiry, which dings your score a little. Applying for 10 store cards just because they offer a discount? Terrible idea. Only apply for credit when you actually need it.