In the financial sector of Nigeria, trust is a vital and required asset that’s neither touchable nor seen but rather gauged by a numerical expression called a credit score. There are two kinds of credit scores with their respective benefits. The first one, which is a good credit score, permits your access to larger loans and favourable repayment rates, while the second, a bad credit score, restricts you to ungranted loans and non-existent repayment terms.
Read more to learn what credit scores are, get tips on how they’re calculated, and learn easy but effective strategies to help improve your credit score.
What is a Credit Score?
A credit score or rating is a number used by money lenders and financial institutions to evaluate your financial log. It helps you access your loans, credit cards, and payment methods/duration to measure your credit risk, i.e., know the length of your creditworthiness. Credit bureaus usually calculate a credit score.
What is a Credit Bureau?
A credit bureau is a body responsible for collecting and fact-checking credit-related information about individuals and businesses. There are three major licensed credit bureaus in Nigeria, namely:
- First Central Credit Bureau
- Credit Registry
- CRC Credit Bureau
These three form the Credit Bureau Association of Nigeria.
The range average of a good credit score in Nigeria
ALAT by Wema Bank, licensed by the Central Bank of Nigeria, estimates that the range average of good credit goes as follows;
- 720 and above Excellent credit
- 690-719: Good credit
- 630-689: Fair credit
- 300-629: Bad credit
How Credit Scores Are Calculated in Nigeria
This is the standardized formula for how credit scores are calculated in Nigeria.
- The Types of Used Credit
The type of credit you have in your name, its limitations, and its accessibility are looked into. This includes student debts, installment loans, and credit cards.
- Your Loan History
In this process, the total amount of cash you own is accessed. The duration of your borrowing and repayment terms is not exempted.
- Registered Address
Your electoral registers will be checked to ensure that you reside at the address with which your credit score is registered. And also to know the years you’ve lived there.
- Extensive Search for Recent Credit Applications
An extensive search for recent credit card applications on other registers is carried out. Sending multiple applications to other creditors harms your credit scores.
- Your Credit History is Looked into
The number of years you have been credited, and debt accumulation is examined.
Effective Strategies for Improving Your Credit Score
- Always Register with a Current Home Address
Registering your credit card with your current home address proves that you still live there and can be contacted easily by your lender or bank institution. Otherwise, your financial aid could come off as fraudulent.
- Avoid Sending Out Many Credit Applications in a Short Time Frame
Every credit application you make is automatically recorded, and an excess interprets a low credit risk. It also makes you credit-dependent, and no potential lender or bank institution would view your submitted application cautiously and eventually make an unfavorable decision.
Related Articles:
- Make Previous Bill Payments in Full and on Time
The best thing to do to improve your credit score is to pay your previous bill on time and in full. This serves as a testimonial of your creditworthiness and helps you build up a credible credit score history. No potential lender or financial institution grants loans to a borrower who is inconsistent in his or her payment methods.
- Avoid Opening New Bulky Credit Accounts
While there are no restrictions on the number of credit accounts one can open or owe; bulky credit accounts are a red flag to potential lenders or financial institutions. To not be at the receiving end of sending off such signals, open credit accounts only when necessary and a spaced duration.
- Close Unused Old Credit Accounts
As stated above, when many credit accounts are linked to your name, it sends different messages to lenders and financial institutions that are often negative and distrusting. So, it’s better to close unused old credit accounts — but not at once. Doing so seems fraudulent and leaves a bad taste in your lender’s mouth. Therefore, the solution therein becomes to close the accounts you don’t use anymore — but not too many accounts at once.
- Keep Your Credit Card Balance Possibly Low
Keeping your credit card balance possibly low increases your chance of getting the desired loan or funds and eradicates the chances of accumulated debt, which ruins the high chance of achieving a loan approval.
- Check Your Credit Score for Mistakes on a Three-month Basis
Now that you know how your credit score is calculated, you understand the importance of every piece of information it contains. To be sure that your information is aligned and accurate, make it a task to check your credit card thoroughly for common mistakes like misspelled or omitted personal information, such as your surname spelled wrongly or an alphabet omitted from your middle name. Other items to check are outdated information and suspected fraudulent account activities by a third party, and report them to the credit bureau authority immediately.
The Bottom Line
A good credit score is synonymous with good physical health. It’s a requirement to ensure financial aid in an emergency. A good score also increases your chance of being eligible for pre-loan offers. Understanding how credit scores are calculated in Nigeria and knowing the right steps to take to improve your credit score will take you closer to better financial options and stability than you’d imagine.
This Post Has 0 Comments