How Credit Scores Really Work

There is a file about you that you have probably never seen. Banks, furniture shops, cellphone companies and landlords read it before they decide anything about you. It is called your credit record, and it produces a number called your credit score. Nobody at school taught us this. That was not an accident. So let us open the file together.

What it actually is

A credit score is a number that says how you have handled borrowed money in the past. In South Africa it is kept by private companies called credit bureaus. The big ones are:

• TransUnion (the largest)
• Experian (which also owns Compuscan)
• XDS

Every time you open an account, miss a payment, pay on time, or apply for credit, the lender reports it to these bureaus. The bureaus turn all of that into a score. TransUnion's score runs from 0 to 999. The higher, the better. Roughly:

Score (TransUnion)	What lenders see
700 and above	Excellent. Best interest rates.
620 to 699	Good. Most credit approved.
580 to 619	Fair. Approved, but at higher interest.
Below 580	Poor. Often declined, or offered expensive credit.

Exact bands differ between bureaus, but the idea is the same everywhere.

What moves the score:

• Paying on time. This is the biggest one. Even one missed month gets recorded and stays on your record for years.
• How much of your credit you are using. If your store card limit is R5,000 and you owe R4,800, that looks risky. Owing less than about a third of your limit looks healthy.
• How long you have had accounts. Older accounts, paid well, help you.
• How often you apply. Every application is recorded as an "enquiry". Many applications in a short time makes you look desperate for money.
• Judgments and defaults. If a court judgment is taken against you, or an account is handed over, your score drops hard.

Here is the part they do not advertise: the National Credit Act (NCA) gives you the right to one free copy of your credit report from each bureau every year. Not a summary. The full report. You can also see your report any time you have been declined.

How it is used against you

The system was built to measure risk, but it is often used to farm money out of people who were never taught the rules.

Retailers push accounts because your score makes them money. When the person at the till says "would you like to open an account and get 20% off today?", that shop is not doing you a favour. Clothing accounts often charge interest of 20% or more, plus monthly service fees. A R1,000 jacket paid over 12 months can cost R1,300 or more. And every account you open, and every enquiry, sits on your record.

A thin file is punished. If you have never had credit, you have no score. Lenders then either decline you or charge you the maximum interest allowed. People from families that never had access to banks start the game at the back, through no fault of their own.

Old debt gets sold and collected illegally. Debt collectors buy old debts for cents and then phone you demanding payment, sometimes for debt that has legally expired. This is called prescribed debt. In most cases, if you have not paid anything on a debt, not admitted it in writing, and not been summonsed for three years, that debt has prescribed. Since 2015 the NCA makes it illegal to sell or collect prescribed debt. Collectors count on you not knowing this. If you make even one small "goodwill" payment on a prescribed debt, you can revive it. Do not pay or admit anything until you have checked the dates.

Errors sit on your record unchallenged. Bureaus make mistakes: accounts that are not yours, payments marked missed that you made, fraud in your name. Most people never check, so the mistake quietly costs them a bond or a job (some employers check credit for financial positions).

How to use it instead

You can build a score deliberately, the same way the well-advised have always done.

1. Get your free reports now. Go to mytransunion.co.za and experian.co.za. Register with your ID number. It costs nothing once a year. Read every line.
2. Dispute anything wrong, in writing. The bureau must investigate within 20 business days, free of charge. If they do not fix it, complain to the Credit Ombud or the National Credit Regulator (NCR).
3. Open one small, cheap account on purpose. Not because a cashier offered it. Choose something you control: a low-limit credit card from your bank, or one store account. Buy something small every month. Pay the full amount before the due date. You are not borrowing because you need to. You are writing your own file.
4. Keep usage low. Use less than a third of any limit. If your limit is R3,000, do not owe more than R1,000.
5. Never miss a debit order. Set the debit for two or three days after payday, not the end of the month.
6. Do not apply everywhere. Space credit applications months apart.
7. If you are drowning, use the official exits, not mashonisas. Debt counselling under the NCA (called debt review) is a legal process that protects you from legal action while you repay. Only use an NCR-registered debt counsellor, and check the register first.

Six to twelve months of this and you will have a real score. Two to three years and you can be in the "good" band, paying less interest than someone who earns more than you but never learned the rules.

Where to go

• Free annual credit report: mytransunion.co.za or TransUnion call centre 0861 886 466
• Free annual credit report (Experian/Compuscan): experian.co.za or 0861 105 665
• National Credit Regulator (complaints, check registered lenders and debt counsellors): ncr.org.za or 0860 627 627
• Credit Ombud (free disputes about credit records): creditombud.org.za or 0861 662 837