What is a credit score?

Understand what your credit score really means.

We’ve all heard about credit scores. We know that we should aim for a high credit score, but what does it actually mean?

There are many different scoring models that allow lenders, creditors or potential employers to score your credit. Credit scores are used by these entities as one factor, when deciding whether to extend your credit, or approve you for a loan and finance.

What is a credit score?

Every month, credit providers send transaction details to bureaus who then compile the information into a credit report, consisting of a consumer’s credit history and habits. When you apply for credit, the financial institution you’re applying through will pull a credit report from one of the four bureaus.

It is important to note that credit bureaus calculate scores differently and scores should not be compared between credit bureaus.

What is a credit bureau?

Credit bureaus are an essential part of the lending infrastructure of businesses. Like any organisation that covers many different types of services, credit bureaus are divided into specific departments that serve specific clients based on the nature of their business.

There are several main credit bureaus in South Africa: TransUnion, Compuscan/Experian, XDS, CPB, and Vericred.

These agencies collect data from lenders, including details about people who have taken out credit in some form or another. They then turn this data around and send it back to the individual buyers, where all the information is kept for future reference.

Getting your credit score.

You can request your credit report online from Credit Health, or get 1 credit report for free online from any of the major credit bureaus. Collection agencies are registered with one or more of these bureaus which means that all payment details, defaults, judgements, and transactions, are recorded on your file.

Your transactions with banks and other financial institutions associated with your account are updated monthly at the credit bureaus.

If you have credit, you have a credit score. And, if you have a credit score, you have a credit history. But what exactly is it? A credit score is a numerical representation of your credit worthiness, based on how you have managed your credit in the past. A good credit score can help you in many ways, while a bad score can cost you in the long run.