While your final grade on your matric report card may be important to ensure you access to a fulfilling education - it will not determine whether you can buy a house, buy a car or be approved for insurance to cover your house and your car! All these decisions hinge on how you fare on the most important grade you will ever receive – your credit score!

Despite the fact that your credit score yields more power and influence over your financial affairs than almost any other single factor, very few people understand how their credit score is calculated. Once you understand how your credit score is calculated you can take active steps to improve it and become more aware of your spending and payment habits to ensure you continuously score top results.

Simply put, your credit score evaluates certain categories of information held by credit bureaus which together are rated to give you your credit score. Your payment history, size of amounts owed, length of credit history and amount of recent credit applications are some of the most important variables used to calculate your credit score. Many other variables also play a role in determining your credit score such as administration orders, sequestration orders, judgments, adverse information and collections information.

Your payment history is one of the most important variables taken into consideration when calculating your credit score. Both previous and current credit as well as your repayment of these influence your score. Late payments and failure to pay can have a severe negative effect on your score, while paying accounts in a timely manner will have a positive effect. In the same way - if you keep all your credit accounts at their maximum limit it will have a negative impact on your credit score. However, opening accounts and not making use of them at all can also impact your score negatively.

The length of time that you have had credit is also a very important factor in calculating your credit score. Ultimately, the longer your credit history - the better. This variable often comes into play for first time credit applicants whose lack of credit history severly impacts their ability to qualify for credit. This is because, as a first time credit applicant, you have no evidence to prove that you will be a good repayer or that you can manage your debt.

The amount of recent credit applications you have made also plays a role in determining your credit score as this can be an indication that you are under financial stress and are desperate for a loan. It is therefore always best to think twice before applying for a string of credit unless you are simply comparing the cost of credit for a particular credit product.

Remember that a credit score takes all of these and many other variables into consideration and no one variable alone will determine your score. Also different credit bureaus use different scoring systems and when a lender requests your credit score it is calculated by a credit bureau, such as Compuscan.

Much like how your mathematics grade depended on your numerical savvy, so too your credit score depends on how refined your financial and credit management skills are. However, unlike your final matric mathematics grade, your credit score is something you can improve! Having a healthy credit score lies in your hands and requires discipline and active participation from your side to effectively manage your finances.

This information was supplied by Compuscan, an innovative credit risk management solutions provider, and one of South Africa’s most respected credit bureaus. For more information on our products and services please contact Compuscan on 0861 51 41 31 or This email address is being protected from spambots. You need JavaScript enabled to view it..