Tips for Building a Good Credit Score
Tue, Apr 14, 2020 12:29 PM
Your credit score-A number used by lenders to help them decide how likely it is they'll be repaid on time if they grant you a loan. It is one of the tools used by Credit Bureaus to provide information on the level of riskiness of individual consumers. It is an important factor in your financial life.
Before now, lenders and creditors depended only on the data that was available to them before making lending decisions. Over the last decade, with services of credit bureaus, it became easier for creditors to make decisions when extending loans or giving credit facilities. Thanks to the data that is shared with them before making those decisions.
Credit Bureaus gather information on credit dealings (borrowing and payment history) from all sectors of the Nigerian economy, from the information gathered they can compile reports on individual credit score.
Credit scores are the grades that credit reporting agencies rate you with and share with creditors and lenders, who evaluate and decide who to extend their credit services to, in addition to all other required documentation.
Credit scores range from 300(lowest) to 850(highest). The higher your credit score, the more likely you are to be considered for loans or credit facilities with low-interest rates as well as in other favourable terms. It makes you a low-risk customer, hence the lender's confidence that you'll pay up.
A low credit score can make it harder for you to get a loan and your interest rate could be higher as it is believed that you are a high-risk customer and you are not financially disciplined.
1. Know the key elements: 5 key elements that are used to calculate your credit score. Payment history(35%), amount owed(30%), length of credit history(15%), new credit(10%) and the type of credit issued(10%). Knowing these elements will help you monitor and understand your credit report.
2. Pay your bills on time: Knowing that your payment history makes up 35% of your credit score, paying your bills on time will raise and maintain your credit score. Paying on time shows that you are financially disciplined and you are a low-risk customer.
3. Manage your debt: The amount of your debt makes up 30% of your credit score, having too much debt affects your credit score points negatively. High debt casts doubts on whether you can pay back on time, therefore makes it difficult to get your loans and new credits approved.
4. Monitor your credit regularly: It is necessary to know and monitor what exactly the lenders are getting as your credit report so that you can take necessary steps to improve it when necessary. Surprisingly, not many people know their credit score and often end up wondering why they got denied for their loan or credit card application.
You can request your credit report from any credit bureau in Nigeria to know how creditworthy you are.
Ensuring that your credit score remains healthy thereby maintaining a good credit score has many benefits and the tips listed above are going to help, especially at this time when the corona virus (COVID-19) pandemic has caused a total lockdown which in turn has caused economic standstill, and so many people will be considering taking personal loans to cater for urgent needs during the lockdown.