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How to calculate your credit score – and why it’s so important



While the economic crisis caused by the Covid-19 pandemic has left 85% of South Africans in need of financial help, recent data has shown that South African’s credit scores are going up after the national lockdown which began in March this year.

The light at the end of the tunnel shows that 51% of South Africans now have a higher credit score than they did before lockdown. Short-term loan providers attribute the improvement of credit scores to a temporary reduction in defaults because of payment holidays offered to consumers at the beginning of lockdown.

Ayanda Ndimande, business development manager of Retail Credit at Sanlam said that as one would rely on a fitness trainer to advise them on the best fitness routines suited for them and a life coach for mentorship, so should one have a financial coach to guide them regarding their finances.

Ndimande said that consumers can do this with the help of a financial coach.

“A financial coach works with you on a continuous basis, focusing on the ‘here and now’ by helping you better understand your financial profile to become and stay financially secure. This includes understanding your specific financial challenges and the steps that need to be taken to improve your credit score.

“If you have a view and understanding of both sides of your personal balance sheet, it is the first step in becoming financially fit,” said Ndimande.

A financial planner on the other hand helps you holistically plan your portfolio to ensure you have adequate cover for your life circumstances.

Investec points out that there are two types of credit: secured credit means borrowing against an asset such as a home or a car, while unsecured credit includes things like store cards, credit cards or personal loans.

A credit score is a summary number based on your credit report, which contains information about the debt you’ve had, how you’ve paid it back, as well as your age and employment status.

When you apply for credit, the financial institution you’re applying through will pull a credit report from a credit bureaus. The report typically includes:

  • A two-year history of all the credit you’ve applied for;
  • The credit accounts you have and your payment history with them (including any late or skipped payments);
  • Any court judgments or defaults you may have against you.

All this information is then compiled into a single credit score, Investec said.

Most credit bureaus rate your credit score between 300 and 850:

  • A low score is generally considered to be between 300 and 579;
  • A fair score is between 580 and 669;
  • A good score is anything above 700.

The higher your credit score is, the healthier your credit is, which means you’re more likely to be approved for a credit application

If you want to understand how your credit score is calculated, why credit providers use this score to decide if you are a good or bad credit risk and how a good score can benefit you to negotiate interest rates, it is best to get a financial coach on board.

Below, Ndimande discusses how your credit score is calculated:

  • How you pay your credit obligations both currently and historically. This accounts for 35% of the score. A missed or late payment affects the score negatively.
  • How much and often you utilise credit made available to you. This takes 30% of the calculation and is based on the balances owed on loans and credit card.
  • The length of time you have actively used credit. The longer the history of credit and on time payment, the better the score. It is good to have debt that is well managed and is taken for good reasons. This contributes 15% to the overall score.
  • Type of credit available across all credit products contributes 10%. A mixture of long- and short-term credit can be favourable.

The most important aspects of credit is payment performance, managing credit and a good credit utilization, Sanlam said.

Improving your financial wellbeing is just as important as maintaining a good overall wellbeing. Consumers can do this by being aware of their finances every day so that they know what they are spending and how much they are saving, Ndimande said.

Read: Here’s why your credit score is so important – and how to improve it

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Bad Credit

Martin Lewis issues guidance on using credit cards to build ratings – best deals | Personal Finance | Finance



Martin Lewis regularly urges savers to use caution when utilising debt themed products but at the same time, he acknowledges the need for a decent credit rating to get by financially. Today, the Money Saving Expert was questioned by viewer Miranda on how one can build their credit rating in difficult circumstances.

“What I’d then like you to do is go and do £50 a month of normal spending on it, things you’d buy anyway.

“[Then] Make sure you pay the card off in full every month, preferably by direct debit so you’re never missing it because the interest rate is hideous.

“That way you won’t pay any interest.

“You do that for a year, you’ll start to build that credit history, showing them you’re a good credit citizen.

“Then you’ll be able to move into the sort of more normal credit card range.

“So, bizarrely, to get credit you need credit. What credit will you get? Bad credit, go get the bad credit just make sure it doesn’t cost you.”

Consumers of all kinds may not have the best options at the moment as recent analysis from revealed.

In mid-November, they detailed that a number of high street banks have cut the perks and interest on a number of their current account deals.

On top of this, the Bank of Scotland and Lloyds Bank made credit interest cuts of up to 0.5 percent.

Rachel Springall, a Finance Expert at commented on the few options consumers and savers currently have available: “Clearly, it is vital consumers decide carefully if now is the time to switch, but if they wait too long, they may well miss out on a free cash switching perk.

“At present, providers will be assessing how they can sustain any lucrative offers in light of the pandemic.

“With this in mind, we could well see more changes in the months to come and if this does indeed occur, consumers would be wise to review whether their account is still worth keeping.”

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Should you use a balance transfer to pay off debt?



Should you use a balance transfer to pay off debt?
Image source: Getty Images.

A balance transfer might be the solution if you have debts and want to gain control over your finances. But whether a balance transfer is right for you will depend on a number of factors.

Things to consider before using a balance transfer

The size of your debt

If you want to apply for a balance transfer credit card, be aware that most providers will allow you to transfer up to 90% of your credit limit.

Your credit limit will be dependent on your own personal circumstances, including your salary, your credit history and your residential status (homeowner or renter).

Be realistic about your debt. For example, if you earn £25,000 per year and you have a debt of more than £15,000, a balance transfer might not be cheapest way to pay the debt.

The time taken to pay the debt

The main advantage of a balance transfer credit card is that many offer an interest-free period on the balance. So, if you can pay off your balance in that period, you won’t accrue any further interest charges.

However, these periods typically range from 18 to 24 months, so if you think you will need more time to pay the debt, you may need to factor in additional interest charges when the interest-free period ends.

Whether or not a balance transfer is the right debt payment solution will depend on your personal circumstances. Check our balance transfer calculator if you want to work out how much a balance transfer could save you in interest payments.

Your credit score

The advantage of a good credit score cannot be underestimated in this situation.

When applying for a balance transfer credit card, the company will check your credit score. Based on this score, they could refuse your application.

Even if you are accepted, if you have a bad credit score they could reduce your credit limit. Ultimately, this will determine the benefit of a balance transfer as a suitable debt payment solution.

If you think your credit score might be a problem, it’s worth checking with the credit reference agencies before applying. That way you can avoid any nasty surprises.

There are three main consumer credit reference agencies in the UK. They are Equifax, Experian and TransUnion (Noodle).

Alternative solutions to balance transfers

You could still use a balance transfer even if the size of your debt is bigger than the credit limit.

Transferring part of the debt would enable you to benefit from any interest-free period, where applicable.

Alternatively, if you have multiple debts, you could consolidate all of your debts so that you can make a single regular payment. If necessary, you could do this using an unsecured personal loan over a period longer than 24 months.

Take home

Look at your own personal circumstances with a critical eye. Remember that you need to factor in living expenses when thinking about how long it will take you to pay off your debt.

Balance transfers are a useful method for debt repayment, but be aware that credit cards are an expensive way to borrow money. Take full advantage of any 0% deals wherever possible. Check out our list of the best 0% credit cards.

Some offers on MyWalletHero are from our partners — it’s how we make money and keep this site going. But does that impact our ratings? Nope. Our commitment is to you. If a product isn’t any good, our rating will reflect that, or we won’t list it at all. Also, while we aim to feature the best products available, we do not review every product on the market. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.

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Turn credit declines into a win-win | 2020-11-20



The pandemic has left millions of people needing credit at a time when lending standards are tightening. The result is a lose-lose situation—the consumer gets a bad credit decline experience and the credit union misses out on a lending opportunity. How can this be turned into a win-win?

The case for coaching

Let’s start by deconstructing the credit decline process: The consumer is first encouraged to apply. The application process can be invasive, requiring significant time commitment and thoughtful inputs from the applicant.

After all that, many consumers are declined with a form letter with little to no advice on actions the applicant can take to improve their credit strength. It is no wonder that credit declines receive a poor Net Promoter Score (NPS) of 50 or often much worse.

On the flip side, forward-looking credit unions provide post-decline credit advice. This is a compelling opportunity for several reasons:

  • Improved customer satisfaction. One financial institution learned that simply offering personalized coaching, regardless of whether or not consumers used it, increased their customer satisfaction by double digits.
  • Future lending opportunities. Post-decline financial coaching can position members for borrowing needs even beyond the product for which they were initially declined.
  • Increased trust. Quality financial advice helps build trust. A J.D. Power study noted that, of the 58% of customers who desire advice from financial institutions, only 12% receive it. When consumers do receive helpful advice, more than 90% report a high level of trust in their financial institution.

Provide cost-effective, high-quality advice

AI-powered virtual coaching tools can help credit unions turn declines into opportunities. Such coaches can deliver step-by-step guidance and personalized advice experiences. The added benefit is easy and consistent compliance, enabled by automation.

AI-based solutions are even more powerful when they follow coaching best practices:

  • Bite-sized simplicity. Advice is most effective when it is reinforced with small action steps to gradually nurture members without overwhelming them. This approach helps the member build momentum and confidence.
  • Plain language. Deliver advice in friendly, jargon-free language.
  • Behavioral nudges. Best-practice nudges help customers make progress on their action plan. These nudges emulate a human coach, providing motivational reminders and celebrating progress.
  • Gamification. A digital coach can infuse fun into the financial wellness journey with challenges and rewards like contests, badges, and gifts.

Virtual financial coaching, starting with reversing credit declines, represents a huge market opportunity for credit unions. To help credit unions tap into that opportunity, eGain, an award-winning AI and digital engagement pioneer, and GreenPath, a leading financial wellness nonprofit, have partnered to create the industry’s first virtual financial coach. To learn more, visit

EVAN SIEGEL is vice president of financial services AI at eGain.

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