Your credit score is determined by your ability to pay back your existing loans and lines of credit on time. When you’re looking for more credit, lenders look at your credit score to see whether you have kept up with debt repayments in the past. But there are quite a few factors that can make your credit score better or worse.

This blog will explore some of the most important factors that can influence your credit score.

Understanding credit checks

A credit check, or credit enquiry, refers to a lender registered with the National Credit Regulator (NCR) looking at your credit report to assess your financial situation. This helps them determine your creditworthiness – that is, your ability to pay back credit. A low credit score makes you a higher risk to lenders, and the higher your credit score, the lower your risk.

Credit checks can also be legally conducted by other organisations, such as potential employers or credit agencies. Credit checks fall into 2 general types – hard and soft.

Common reasons for a drop in credit score

Missing or late payments

This is the most common reason for a drop in credit score. Non-payment has a more negative effect than late payment, so it’s always worth paying something towards your credit instalments.

Account arrears

This demonstrates that you’re unable to repay a loan, and you will be reported as defaulting, which decreases your credit score significantly. It also usually results in legal action against you if you remain in default.

New credit

Even when your new credit application is approved, it can lower your credit score slightly in the short term, as explained above. The lender will do a hard check on your credit report, which causes the temporary drop. If you apply to several lenders for new credit, it can give the impression you’re desperate, which may decrease your score further. However, if you pay your bills on time and keep your credit usage in check, your credit score will recover quickly and grow even further.

Closing old accounts

This may decrease your score, since older accounts that you’ve been paying steadily increase the age of your credit report, which in turn indicates stability and lower credit risk. Closing accounts also reduces your overall credit limit on your report.

Steps to remove hard credit checks from your score

If your score has dropped significantly and you’re not sure why, you should check your credit report and take corrective action. If an authorised lender checks your credit report, the inquiry will be legitimate, so it cannot be removed. All authorised lenders with the NCR – including banks, credit card companies, loan companies, and landlords – can check your credit history regarding your application for credit (or a lease, in the case of a landlord).

However, in other cases, these hard checks can be the result of errors or security threats, including the following:

• Reporting errors caused by mistakes in personal information like your name, phone number, or contact address,
  
  
• Account administration errors, or
  
  
• Potential identity theft.
   

In any of these cases, especially identity theft, you have a legal right to dispute it so that it can be removed from your credit report. Take the following steps:

• Get copies of your credit report from the credit bureaus operating in South Africa to check if there is any difference in each report. If there are inaccurate inquiries on your report, flag them.
  
  
• If there is suspicious or inaccurate information in your report, contact the lender involved to avoid a formal dispute over the issue, and explain the error. Providing relevant details about the inquiry will enable it to be removed if you have not applied for the loan.
  
  
• If the lender ignores this request, you can launch an official dispute by sending written communication and keeping track of all progress on the dispute. Once you’ve submitted an official dispute, you should wait for a verdict, which usually takes between 30 and 45 days from the date of submission. If the check was a mistake, the credit bureau will contact the lender, and it will be removed from your profile. If the bureau fails to verify the mistake, it will be removed from the report. However, if the lender confirms that the hard inquiry is a genuine credit check, the credit bureau will not remove it from your credit report.

Read more comprehensive information about your credit score. You can check your own credit score on the Money app.