All things financial aren’t as simple as it is made out to be. Let’s take your credit history for example. What is it called? A credit report or a credit score? Aren’t they the same thing? Let’s take a helpful look at some simple explanations to the questions you have about credit reports and scores.

What is a Credit Score?

A credit score is a unique rating assigned to any person who has a credit history. Your credit score is one component of your credit report and probably the piece of information most people want to know. 

The unique rating is a number usually ranges from 0 to 999 depending on the credit bureau that calculates the score. A higher number refers to a better credit score. A credit score is a way to measure risk. It measures the likelihood that the candidate will default on their debt. 

A score closer to 0 means the chances of failing to repay debt is higher. Whereas someone with a score closer to 999 has lower chances of failing to repay debt. A score is taken at a specific moment where you engage with any credit facility. Your past credit habits have an effect on your score now. Overall your score is a reflection of the risk you pose to lenders based on your credit history.

Credit score ratings are generally graded as follows:

• 800 & more – Outstanding
• 740 to 799 – Excellent
• 670 to 739 – Above Average
• 580 to 669 – Average
• 579 & below – Poor

Credit scores are calculated by the three nationwide credit bureaus. Experian, TransUnion, and Compuscan. If you don’t know what a credit bureau is, hang as we’ll get to it further down this guide. Each bureau has a slightly different way of calculating your credit score. But, it all comes down to the same principle i.e. a score based on your credit habits. You have one free credit score from each of these three credit bureaus per year.

Why a Credit Score?

Simply put, lenders would like to know what the risks are before they loan money to someone. Your credit score will serve as a measurement for your credit health. The lending industry hinges on the ability of customers to repay. Lenders lose money (and they lose big) when borrowers can no longer repay them.

In 2008 there was a big financial crisis in the world. Essentially money was lent to people who couldn’t repay it. It caused international repercussions. Economies from all over the globe suffered because of this. Ever since then, lenders have stepped up the criteria for eligibility for credit. A person’s credit score is one of the ways in which their eligibility for more credit is judged.

Credit Report Or Credit Score, What’s The Difference?

Both of them deal with the same information. But, in actual fact, a credit score is based on your credit report. A credit score is your credit health at that very moment. A credit report is the history of your financial life.

What Is a Credit Report?

A credit report is the total history of someone’s financial dealings. It is a track record of their financial health. Every transaction, every request for credit, and every payment made towards debt is put on record. Public information like any court rulings against your name (like foreclosures) will also be kept on your credit report.

The following things will be included in your credit report:

• Basic Details 
• Credit Score
• Credit History
• Open Accounts and Balances
• Recent Credit Inquiries/Requests (also known as soft or hard credit checks)
• Public Records and Payment Collections

Who Keeps my Credit Report?

Credit Bureaus are in the business of buying and selling data. Lenders will look for any public information themselves, but it takes too long and it is too costly. So they rather just buy it from credit bureaus. Credit bureaus harvest public information about you and store it. They sell it to lenders and financial service providers who need your information.

Who Has Access to My Credit Report?

Financial institutions, lenders and other service providers who are perhaps entering a contract with you would like to access your credit report. They will have access to it once they have bought it from any of the credit bureaus. Once again, to reiterate, only public knowledge about your financial dealings are available on your credit report.

Why Does My Credit Report Matter?

As mentioned earlier, the eligibility criteria for credit is quite stringent nowadays. So you’ll have to look after your credit report. It is the key to getting extra help from lenders. You might be in a tough financial situation in your life, someday. Having a great report and score will help you to acquire financial help from lenders quickly.

How Do I Build A Good Credit Report?

The easiest answer would be to only borrow what you can repay and then to pay it on time, every time. But, obviously, banks won’t give you big loans without something to prove your eligibility for it. That is simply too risky for them. 

Still, this is one of those frustrating questions many people would like to know more about. So, here are a couple of ways in which you can build a good credit report, safely.

1. Secured Credit Cards

These cards work in the same way a normal credit card does. But, you need to pay a deposit upfront. The deposit you’ve paid will act as the limit on the card. You won’t be able to transact beyond that deposited amount. Your card will have an interest rate. It will accrue interest once you run a transaction through it. 

You are actually borrowing money against yourself. The bank supplying you with this service has little to no risk involved. These transactions will show up on your credit report. Save up for a deposit. Open a secured credit card. Start transacting. Pay it on time and build a good credit report.

2. Clothing Accounts

Everyone buys clothes at some point in their lives. The key is to only buy what you need and that which you can afford. You can always consider buying clothes on an account if you are able to bridle your shopping urges. Many of these accounts can be interest-free for a set amount of months. You’ll be receiving some help in the process. 

Your cash flow will be much easier to maintain if you stretch out the repayment of your clothes over a longer period. Clothing accounts will show up on credit reports. Pay them on time and build a good one. Steer clear of buying items that aren’t necessary. You don’t want to ruin your credit report over something you didn’t need.

3. Cell Phone Carrier Contracts

A mobile service provider is not exactly a lender. But, payments on a cell phone contract will be noted on your credit report. Most people in South Africa have phones, and you might as well get your first phone on a contract. 

Not only can you build a solid credit report (with on-time payments). You’ll also take some strain off your cash flow. The cost of a phone will be spread out over the duration of the contract. You don’t need to shovel out a large amount. You can divide it into monthly payments. Interest might be added over the duration of the contract. But, at least you are able to buy a phone you otherwise would not have afforded.

4. Rent Reporting Services

Paying rent is an obligation. You need to see to your side of the bargain once you sign that contract. Unfortunately, it’s not a form of credit and it will not be listed on your credit report. 

Fortunately, there is something called rent reporting services. These service providers will list every payment you make towards your rent. This information is not regarded by every company that calculates your credit score. But, it can help to solidify your credit report. It will only do good to prove your trustworthiness with even more evidence.

Why Is My Credit Score So Low?

So once you’ve taken your first credit score you’ll perhaps have a few questions. Why is it lower than what you expected? 

The following things could be a factor:

• You have a credit history of fewer than 6 years. The full-time frame for a thorough credit check is a 6-year credit report.
• Missed or late payments of any kind.
• A poor credit report due to a lack of accounts.
• Court judgments or a record of insolvency.
• Balances on your accounts that are close to your limits indicate you rely on credit to get through each month.

How Long Does It Take To Improve My Credit Report?

The honest truth is it depends on you. You need to develop sound financial habits. It’s great to have a watertight budget. But, you still need to keep to it. A credit report is a history of your financial dealings. Instances like late payments, bankruptcy, and tax liens will stay on your credit report for up to 10 years.

The following financial habits will help you build a healthy credit report.

1. Don’t Spend More Than Your Earnings

This financial habit alone will cause you to flourish. This is the surest way towards a good solid credit report because you don’t rely on credit in the long term.

2. Reassess Your Expenses

Go through your spending habits. Keep the things that are necessary. Find ways to make it cheaper and stop spending money on luxury items until you can afford them. Most people start using forms of credit to justify expenses that don’t fit their budget. This is where the road to debt can very easily get too much momentum.

3. Allocate Money To An Emergency Fund And Savings

Saving money is one of the smartest ways to ensure financial health. Emergency costs do happen and they are one of the biggest reasons people start using credit facilities. To prevent long-term debt because of emergencies, allocate money to an emergency fund or savings account before you pay any luxury expenses.

4. Find Additional Sources Of Income

You don’t only need to lower your standard of living. You can look for an extra job or side hustle. Use what you have to make extra money.

5. Set Goals That Inspire You

You need to be your own number one fan here. Set goals that are specific, measurable, attainable, relevant and put a date to each of them. Such goals will keep you moving forward in pursuit of good financial health and become a net investor instead of a net borrower.

Where Do I Get My Credit Report?

Remember you can get a free credit report per year. Go to the websites of any of the three nationwide credit bureaus and apply online for yours. It’s your right to know your credit health. You need to know where it is before you can get it to where you want it to be. 

Fortunately, information has become more accessible than ever before in the internet age. There are many companies offering free credit reports and scores in innovative and visually stunning ways. These companies pull the information from their credit bureau of choice, cover the cost for you and present the information to you in a helpful manner. They usually do this as a value-added service to some of the solutions they offer in the personal finance space.

Some of the consumer favourites are:

• Clearscore
• Kudough
• myFincheck

Conclusion You can’t steer what you don’t know. Take the first steps towards even better financial health by getting your credit report and score. Your credit report is one of the most important financial tools at your disposal to direct your financial wellbeing.