Credit Rating

What is a credit score? The borrower’s credit rating is an indicator of the financial reliability of an individual. Using this rating, the lender determines the creditworthiness of the client.

Creditworthiness is the aggregate characteristic of the borrower, formed at the expense of financial and information indicators. With its help, the potential lending risks and the client’s ability to pay out the loans for unemployed on time and in full are determined.

There are two methods of assessing creditworthiness: an expert assessment and credit scoring.

To obtain a credit rating, banks and financial organizations cooperate with credit rating agencies. Credit bureaus store the borrower’s credit history, the number of loans, and other financial data online. Due to a special algorithm, these data are calculated and the very credit rating of the borrower is formed.


How a credit score is formed?

For each account, the credit report indicates the date of its opening, loan amount or credit limit, current balance, and payment history. The report also includes all cases when an individual applied for a loan. In addition, it may include tax liens and court decisions, as well as information about the accounts that were submitted to the court and/or the Executive Service, as they remained unpaid after several attempts by the creditor to secure payment and caused a bad credit score.


Types of credit ratings

The credit score system of TransUnion consists of 999 points, the higher the number, the better. In general, any score above 767 is considered to be excellent and promises to obtain amounts at low rates at banks or any other credit organizations; in case the account is lower than 613 – one will pay very high rates on quick loans online and credit cards, if the bank takes risks and a positive decision on lending comes.

Credit rating scale:

  • 0-486 – excellent;
  • 487-526 – good;
  • 527-582 – favorable;
  • 583-613 – average;
  • 614-680 – below average;
  • 681-766 – unfavorable;
  • 767-999 – poor.

According to another credit bureau – Experian, the credit score range is slightly different:

  • 650+ excellent credit;
  • 600 – 650 – very good credit;
  • 550 – 600 – good credit;
  • 490- 550 – sub-prime;
  • 490 and below – poor credit.

What factors can influence a credit rating

Category Evaluation Short description
Timely payments 35% past credit accounts paid off in a timely manner
Amounts Due 30% coefficient of use of the established credit limit
Credit history 15% it shows the credit experience of a potential borrower
New loans 10% opening multiple credit accounts in a short period of time presents a higher risk – especially for people who do not have a long credit history
Using multiple loans simultaneously 10% credit scores are calculated taking into consideration all the open loanable agreements, including credit cards, mortgage, personal loans, and microloans

How to check my credit score?

A potential borrower can and is required to check out their credit rating with official credit bureaus. These are companies that collect information about the credit history of individuals. These organizations are known to receive regular reports from banks, credit card companies, retail stores, and mortgage lenders on loans and credit cards of a person.

By law, every citizen of South Africa can receive a credit rating report for free once a year. If one wants to do this more often, then a small fee is charged.

For example, ClearScore, Go Credit Reports.


What is the effect of a negative credit rating?

Bad credit history will be stored in the database for a strictly defined time: the last payments, notification of fees and redemption remain in your report for seven years; bankruptcy up to 10 years. Any of these oversights are red marks to the lender that a person can be risky to cooperate with. This may result in an individual being denied a loan or stuck in a higher (more expensive) interest rate.

Thus, having a bad credit rating crucially decreases the person’s chances to obtain a mortgage, vehicle loans or personal loans. Therefore, a borrower must conduct a credit score check scrupulously and make all payments regularly and on time. As has been already mentioned, one has the opportunity to check free credit scores.


How to increase credit score?

It is impossible to completely fix the credit rating, but it is quite realistic to improve it. To do this, one must actively and responsibly use credit services, always repaying the loans for blacklisted in a timely manner. This greatly enhances the possibility of issuing a large amount of credit for the long term. The lender considers clients to be reliable borrowers based only on a good credit score.

Other ways to increase a credit score:

  • Avoid having several loanable agreements at a time;
  • Try not to get close to your credit card limit;
  • Your current loan debt should not exceed 30% of your monthly income;
  • If at the present time, it is difficult for a borrower to pay the required amount, they should take care of debt restructuring.