There seems to be a lot of confusion regarding credit bureaus and how they determine our credit scores. For many years the industry was shrouded in secrecy and the man in the street had little no access to their own vital credit information. Fortunately, they are now a lot more transparent and the process is becoming a lot easier for the average Joe to understand. It has also been regulated for some time now that the various bureaus have to give you access to at least one free credit report per year. This has gone a long way towards demystifying credit reports but many myths and untruths still prevail.

There are a few bureaus registered in South Africa but the two main ones are:

Transunion Credit Bureau (Pty) Ltd (formerly ITC)
Experian South Africa (Pty) Ltd

Credit cards are useful if used carefully. When not used wisely, they can be recipe for disaster. One of the prevailing myths is that having an outstanding balance on your card every month will help your credit score. This is simply not true. While the credit bureau needs to see a payment history in order to calculate your score, leaving a balance on your credit card will do nothing to improve this. Pay what is due on time, every time and do not have too much debt relative to your income. That is the basic foundation for a good credit score. The less credit you use of the credit available to you, known as the utilisation rate, the better your score. Another important factor is the length of the payment history. Therefore credit card that has been well paid for a long time will look really good and help your profile with the bureau.

By spending on your credit card, you save on bank charges as the merchant pays for these. You will also often receive points on the various loyalty or rewards programmes offered by most credit card companies. These can add up nicely and be quite lucrative.

By paying the full outstanding balance when it is due, you will not incur any interest charges and your only costs will be the annual card fees. These regular payments will look good on your credit profile and help to improve your score. If you are not able to pay the full balance, try to keep the outstanding balance at around 30% of your available credit for the best reflection on your credit profile. As previously stated, the most important thing is to pay what is due and to pay it on time.

Two other important points to note is not to take on new credit cards in an attempt to increase the available credit thinking this will improve your score and do not simply close paid-up cards to improve your immediate score. These strategies will not help your credit profile.

By all means, use your credit card but use it responsibly and pay it responsibly and you will not have any negative issues with your credit score.