Low credit score can have a damning effect on your financial life.
Ever wanted to take a loan from a lender and you get an error message that you are not qualified? Well, there are lots of factors that contribute to this rejection; one of such is a low credit score. In Nigeria, due to the high record of people failing to repay their debts, mobile loan vendors are now careful and choosy on whom they want to give out loan to. Nobody wants to suffer bad debts, especially when the loan does not involve the use of collateral.
Every loan you take whether from a bank or a mobile loan vendor, your record is kept in the database of a credit bureau. This is then accessed by another lender each time you want to make an application.
What is a Credit Bureau and how does it Work
In Nigeria, the credit bureau is an institution laden with the responsibility of gathering information about the performance of people’s loan. Some of the information kept by this bureau includes your previous repaid loans, current running loans, how you are currently servicing your loans and possibly if there is any balance you are yet to repay. All these form your credit history or credit score.
All these information about you, the borrower are things that the lenders look into to determine if you are eligible for a loan or if your loan offer should be rejected. The concept of credit history and credit scores is nothing peculiar to Nigeria. As a matter of fact advanced countries like the United States use such scores to access the legibility of an individual before a loan or credit agreement can be carried out.
How the Credit Bureau Works
The credit scoring system works with three major agents, you, the creditor and the bureau.
First you apply for a loan from any vendor or creditor. The creditor is curious to know how well you have been repaying debts and your financial status. This leads to the second stage.
At stage two, the creditor sends your information to the Credit Bureau who then checks and confirms your score and your status to the creditor. They send your information back to the credit who determines your fate.
The creditor analyses your status and determines if you are a good fit for business. He then sends back the information about you to the CB who is obliged to send you a copy of the credit history when you request for it.
Understanding the scores and what they mean
Generally, the score ranges from a low number of 300 to a high number of 850. If your credit score is lower, then it means it is more risky to extent credit to you or high probability that you may default in payment.
What is the information kept in the database?
Some of the details have been listed earlier; however, let us take a critical look at each one and how it affects your credit score.
Account Details / Bank Verification Number
The introduction of the bank Verification Number in 2015 witnessed a boost in the fintech sector in Nigeria. One of the major reasons for its introduction is to combat fraud, but today it is far beyond that. While it has helped in reducing the level of local scamming, as every transaction can be traced to the owner of the account, it has also been effective in boosting the credit sector. Vendors can now easily access the credit score of their potential clients with ease. Prior to the introduction of BVN, few lenders would agree to give out loans without collateral, due to fear of losing their money.
Once you apply for a loan, your account details are taken even though the loan application is not successful. This is then kept in the database of the vendor and the credit bureau for future accessibility. One important thing you note is that, since all you accounts are linked to one BVN, once your information is accessed through the BVN, all your account details would be visible. Not to panic, no vendor can access your money without your permission as they stand the chance to lose their license.
Your Occupation, Address and Monthly Income
While filling out the loan application form, you may be tempted to later any of these, but the truth remains that it may affect your ability to obtain loans as you would be viewed as being dishonest. The possibility of you getting exposed is because of your BVN. Always ensure to match the details of your BVN to the one in your potential vendor’s form. This information is also needed by the Credit Bureau to determine your credit score.
Your address place a key role in making sure your loan is approved or rejected. A vendor based in Lagos may not be willing to extend credits to a potential debtor based in Port Harcourt.
Your Phone Numbers
Your phone number which is used by your vendor is extended to the Credit Bureau. This information as well as your active email address is kept for the CB for future assessment.
Your Loan History
While reading your credit score, one of the information you will see is your credit history. This includes the number of times you loans from a particular vendor, the duration of the loan, how quick you repaid the loan, if there were any bounced cheques among other things related to your credit history.
Court rulings are also included in your credit history by the Credit Bureau to determine your credit score and how fit you are for a particular loan. This includes bankruptcy, court judgments on previous loan serviceability among others.
How does the Report affects you
The credit report can affect you in many ways. This ranges from being denied a loan application to being prevented from traveling out of the country.
Rejected Loan Application
Poor credit score can make a vendor deny you that urgent loan you needed. When you do not maintain a good record, nobody would be willing to take the risk of extending their credit to you because you have been marked as untrustworthy.
Poor credit score can also make a lender rejects a corporate organisation’s application for loan, if you are one of the directors or key members. This is why it is good for you to get a credit report of yourself from time to time to avoid messing things up
Rejection as a guarantor
Ever volunteered to help someone and then the person gets rejected because of you? Well, I believe nobody wants to be in that position as it leaves you in a bad light. You don’t want to be cause of another man’s sorrow, especially when such person has so much trust in you.
Rejected visa Application
It is better for you not to apply at all for a loan than allow your credit history be the cause of your visa rejection. This might not be made open to you, but the truth remains that, if you have an outstanding debt, you may not be allowed to travel out of the country, especially if you are traveling for the first time or are of the middle/lower class.
How can you improve your credit Score?
There are several ways to improve your credit score, which I covered in detail here. The most important is for you to settle of your debts in time. Others include;
- Pay your loans on time
- Do not issue dud cheques
- Inform your creditor if you will not be able to pay the debt on the agreed date.
- Request for a credit score analysis from time to time.
- Where can you get a Credit Report?
There are a good number of Credit Bureaus in Nigeria. They include: CRC Credit Bureau, C R Services Credit Bureau, FirstCentral Credit Bureau, Credit Registry among others. Most like CRC Credit Bureau offers free credit score analysis.
Your credit score can go a long way into ruining you or granting you the next business/personal loan that you so much desire to catapult your business. In other not to face uncertainties when applying for loan, always make sure that you settle all your outstanding loans. With a regular Credit history check on yourself, you reduce the likelihood of being rejected by any loan vender.
You may not find it important in keeping a good credit score, but someday you shadows may come to hunt your future and probably cause a serious damage, which I believe is not part of what you’d want to happen.
This post covers details of how to get a free credit report and how to read it
Learn more on each credit bureau and what they sand to offer.
Get more details on how to improve your Credit History here
Get more details on how the credit Bureau works here.