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How your credit score can stop you from getting access to loans
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  •  Dec. 4, 2023  Godwin   Mukoro   Categories:  Blog   Tags:   Loans Credit

When applying for loans, your credit score or rating is an important factor that determines how much you can get and the terms you get the loans at.

 

It is a number that tells the financial institutions whether you’re a good customer to give a loan and for how much and how long you can be given such loan.

 

A bad credit score usually means that the customer can either not access the loan or can only access small amout at a lower tenor.

 

The various credit bureau licensed by the Central Bank of Nigeria provides informations to financial institutions that help them in appraissal of customers. Such information, apart from containing your credit score or rating contains things like:

 

    1. All the list of loans you have taken from licensed financial institutions.
    2. How many have been paid-off.
    3. How many have been classified bad.
    4. And so on

 

Many financial institution's customer have developed the habbit of having multiple loans from different sources even when their finances can hardly settle them. The financial institutions on the other hand will review these credit reports and once it is discovered you have multiple unsettled loans will refuse you access to loan.

 

What is a credit score?

Your credit score or rating is sort of a score of your financial history. 

 

It is usually a three-digit number that reflects how trustworthy the borrower is when it comes to handling money and repaying debts. 

 

Credit scores are influenced by a number of different factors including your credit history, length of previous loans, types of credit, late payments, defaults, etc.

 

What is a Credit Bureau?

A credit bureau is an agency that collects and relates credit-related information about individuals and businesses. 

 

They collect financial data from various financial institutions including banks, lenders, creditors, public records, and sometimes from utility companies. 

 

The data collected includes information like your payment history, outstanding balances, credit limits, name, address, and national identification number. 

 

How to know what your credit score means

All three credit bureaus in Nigeria use the FICO scoring model, which means that scores all range between 300 – 850. Using the FICO scoring model, here’s what your credit score says about your borrowing habits:

 

300 – 499: Very poor

500 – 600: Poor

601 – 660: Fair

661 – 780: Good

781 – 850: Excellent

 

FICO Scores are calculated using many different pieces of credit data in your credit report. This data is grouped into five categories: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%) and credit mix (10%).

 

How to Improve Your Credit Score

While there are some general steps you can take to build and maintain good credit, many of the ways to improve your credit score will be specific to your situation and credit history.

 

Always check your credit score and ratings with the credit bureau you find and the information you find will help you determine which steps to take. With that said, here are some best practices to help you get started.

 

Pay Your Bills on Time

If you've always paid your bills on time and if for any reason you have some past-due payments, pay up as quickly as possible and make it a priority to pay on time going forward.

Pay Down Your Loan Balances

If you can pay above the monthly requirement do so, it will keep your credit up and remove you borrowers having bad loans.

Avoid Frequent Credit Applications

Applying for credit regularly not only results in multiple hard inquiries but it can also bring down the average age of your credit accounts. As a result, it's a good idea to only apply for credit when you absolutely need to.

Dispute Inaccurate Credit Information

As you review your credit reports and balances, look for information that may not be accurate. Fraudulent and incorrect credit report information could potentially harm your credit score.

 

Incomplete application form and documentation

You always ask what is required when completing each loan, because your application can be rejected because of incomplete documentation. Bob can provide you such information

Avoid multiple sources of loan

It would be a good idea to keep all your borrowings in one financial institutions where possible. That another institution will grant you credit does not mean you can pay it only destroys your credit rating further.

 


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