A credit score is what lenders in Nigeria use to check you are able to manage your debt and tells them if you are a risk or not.
If you already know how to check your credit score, the next question is always ‘what is a good credit score?’ It’s a good question, and one without a single answer because the three main credit referencing agencies in Nigeria all score consumers slightly differently.
If you have a good credit score, you can save yourself a lot of money on hefty interest rates, because your hard-earned credit rating will give you access to the better rates and deals on credit cards, loans, credit agreements and mortgages. Conversely, if you have a bad credit rating, you are likely to be offered high interest rates and worse deals, or fail to qualify for credit at all.
What is a credit check?
Put simply, when you apply to borrow money the lender will assess if you are worthy of being given credit. The lender does this because it needs to know whether you can manage your debts, or whether you are likely to run into financial trouble or even default on the debt.
When deciding whether to approve your application, the lender will look at your official credit report which contains full details of your financial history. This report will be provided by one or more of Nigeria’s three main credit reference agencies for a fee.
This report will tell the bank, loan company or microfinance bank whether you have a mortgage, how much you owe on cards, and if you have missed any payments – be they cards, loans or mortgage payments.
Therefore, the higher your credit score, the better your chances of being approved for the most attractive credit card deals.
The importance of your credit file
As you may have realised, your credit report is incredibly important because it helps lenders decide if they should approve or decline your application for credit and what terms they can give you – beneficial or otherwise.
But as each lender has its own specific rating system, it will consider your application and any previous dealings they might have had with you to come up with a specific credit score.
This may sound a bit sinister, but contrary to popular belief, there isn’t a credit blacklist and you don’t have a single credit score. If you are turned down by one lender, you could well be accepted by another.
Someone with a spotless credit record, for example, is likely to qualify for a 0% interest deal. However, if your record is blemished with unpaid debt, you could be turned down or charged a higher rate of interest.
What affects your credit score?
Your credit score is calculated by taking a number of factors into account, including:
Late payments: If you are late or you miss a credit card payment or a loan repayment, it will show up as a bad mark on your credit file.
Minimum payments: You could also find that your record is tainted if you make only the minimum payments each month, as it suggests that you are struggling to manage your debts.
IVA or bankruptcy proceedings: You will almost certainly have a low credit score if you are declared bankrupt or enter into an Individual Voluntary Arrangement (IVA).
Little or no financial history: You may struggle to borrow money if you have never borrowed before, as having no credit history makes it difficult for the lender to assess your creditworthiness.
Easy access to available credit: People who borrow relatively small amounts or who prudently pay off their credit card bills in full each month are not profitable for lenders.
Access to large credit: Similarly, having access to large amounts of credit could worsen your score, as there is a possibility you might draw down a lot in a short space and struggle to service the debt.
Frequency of credit applications: If you apply repeatedly, lenders may assume you are in a financial crisis. You should limit your applications, particularly if you were recently turned down.
It’s important to understand that this information doesn’t stay on your report forever. A missed payment on your credit card will usually be wiped off after three years, and details of a bankruptcy should remain on your file for six years.
Being refused credit is frustrating, especially because the lender doesn’t need to give you a reason. That said, you should always ask as they might give you a broad hint – which you can check on your credit file is accurate.
Always make sure that your name is on the electoral roll, as it’s one of the first checks made by lenders. They want to know exactly where you live at the time of your application, so they can get in touch should anything go awry.
Also, the timing of your application could affect your score. So don’t be surprised if you are refused credit shortly after moving home or switching jobs, as lenders look for stability and can be put off by any recent changes.
How to improve your credit rating
As there is no such thing as a credit blacklist or a universal credit scoring system, you will find there are various opportunities to improve your score. Here are our top tips
1. Register for government Identification
One of the easiest ways of boosting your score is getting a government ID such as an international passport, PVC or drivers license.
2. Demonstrate financial stability
Obviously, the best way to improve your credit rating is to manage your debts well. Don’t miss any monthly payments, stick to the payment deadline, and stay within your credit limit.
3. Check your credit report regularly
Review your report frequently to check all the information held about you is correct. And of course amend any errors if you spot them.
4. Close down old accounts
You might owe nothing on the cards, but the lender will look at all your available credit before it makes a decision on your application.