Many South Africans believe that the quickest way to improve their credit score is to close every contractual expense account they have. While reducing unnecessary debt is always a wise financial decision, closing all your accounts can actually work against you when it comes to building and maintaining a healthy credit profile. Banks and credit providers don't simply look at whether you have debt - they look at how you manage your financial commitments over time.

Your Payment History Is Your Greatest Asset

In South Africa, credit bureaus place significant emphasis on your payment behaviour. Consistently paying your accounts on time demonstrates that you are a responsible borrower and can be trusted to meet your financial obligations. Long-standing accounts with an excellent payment history provide valuable evidence of responsible credit management. Closing these accounts may reduce the amount of positive information available on your credit profile.

A Healthy Credit Profile Is Better Than No Credit Profile

Many consumers believe that having no credit is better than having credit. In reality, lenders prefer applicants who have successfully managed credit over time. Whether you are applying for a home loan, vehicle finance, or personal finance, banks want to see that you have experience handling credit responsibly. An active credit profile with a proven repayment history often gives lenders greater confidence than a profile with little or no recent credit activity.

The Length of Your Credit History Counts

Older accounts contribute positively to your credit profile because they provide a longer track record of responsible financial behaviour. For example, if you've had a retail account or credit card for several years and have maintained an excellent payment record, closing that account may reduce the strength of your overall credit history.

Credit Utilisation Is an Important Factor

For revolving credit facilities such as credit cards and overdrafts, lenders also consider your credit utilisation - the percentage of your available credit that you are using. For example: - Credit limit: R20,000 - Outstanding balance: R4,000 - Credit utilisation: 20% This demonstrates responsible use of available credit. However, if you close one or more credit facilities, your total available credit decreases. Even if your spending remains the same, your utilisation percentage may increase, which can negatively affect your credit score.

Credit Providers Want to See Responsible Financial Management

South African lenders generally prefer applicants who have demonstrated they can successfully manage different types of credit, such as: - Home loans - Vehicle finance - Credit cards - Retail accounts - Personal loans This doesn't mean you should take on unnecessary debt simply to improve your credit score. Rather, maintaining a small number of well-managed accounts can strengthen your credit profile.

Think Carefully Before Closing an Account

Before closing any contractual expense account, consider the following: Do- es the account have a long history of on-time payments? - Is the account still useful to you? - Are the monthly or annual fees reasonable? - Will closing the account reduce your available credit significantly? - Could closing it negatively affect future finance applications? If an account is inexpensive to maintain and has an excellent payment history, it may be worth keeping it open.

Better Ways to Improve Your Credit Score

Instead of closing every account, focus on habits that genuinely improve your creditworthiness: Pay- every account in full or at least by the due date every month. - Reduce outstanding balances where possible. - Keep your credit card balances well below their limits. - Avoid applying for multiple new credit facilities within a short period. - Check your credit report regularly to ensure all information is accurate. - Keep older, well-managed accounts open where practical.

The South African Reality

South African credit providers assess much more than whether you owe money. They evaluate your payment history, your current debt levels, the types of credit you manage, the age of your accounts, and your overall financial behaviour. Closing every contractual expense account may seem like a sensible move, but it can remove valuable evidence of your financial responsibility. A strong credit profile is built through consistent, responsible credit management - not by eliminating every account. The goal should not be to have no credit. The goal should be to have good credit. By maintaining a manageable number of accounts, paying them on time, and borrowing responsibly, you place yourself in a far stronger position when applying for future finance, whether it's a home loan, vehicle finance, or any other form of credit. Disclaimer: While the principles above reflect how South African lenders and credit bureaus commonly evaluate creditworthiness, each credit provider uses its own scoring models and lending criteria. Individual circumstances may differ, so it's always advisable to seek professional financial advice where appropriate.