Key Ratios to Analyse Credit Worthiness

Overview

How much of your total available credit have you used? How much do you owe on specific types of accounts, such as a home, car or credit card loans, credit cards and installment accounts? These all form parts of the key ratios to analysing your credit worthiness.  

Yes having a R0 balance on your accounts scores you high marks. But owing a little bit can be better than owing nothing at all because lenders want to see that if you borrow money, you are responsible and financially stable enough to pay it back. Therefore less can be better, and more too.  

For example, someone who has a balance of R50 on a credit card with a R500 limit will seem more responsible than someone who owes R8 000 on a credit card with a R10 000 limit. 

Your credit utilisation ratio can also include: 

• Payment history

Do you have a history of paying on time? That’s what will improve your score the fastest. 

• Amounts owed

How much debt do you carry compared to how much you make? Reducing the amount you owe will also go a long way to improving your credit worthiness. 

• Length of credit history

The longer you’ve had credit, the better. A person who’s younger will typically have a low credit score than someone who is older, even when all other factors are the same. 

• New credit

Each time you sign up for a new credit card or loan, your credit score will likely go down for at least a short time. 

• Types ofcredit used  

A good credit mix (credit cards, installment debts and long-term loans) will improve a credit score.  

How much do you owe on specific types of accounts, such as a home, car loans, credit cards and installment accounts. Credit scoring software likes to see that you’ve a mix of different types of credit and that you manage them all responsibly.