The structure of the credit system – Borrowing, lending, repayment and regulation constantly receive attention from the government, financial institutions and other concerned parties. A person or business’s ability to borrow, as well as the extent to which they can, is mostly dependent on trust. The lender must trust the borrower, his ability to repay and his integrity to stick with the terms of contract.
Trust, as a social currency, is developed on the firm belief that the trusted person or trustee is reliable and honest. Where there is no trust, appropriate measures are put in place to ensure both parties come out of the transaction unscathed either in the form of caution and checks or repercussions in fines levies and limits.
Lenders become interested in the direct or indirect reports of individuals or organisations of prospective borrowers. For the lending and credit system, this means the credit score or rating, a concept that many within the Nigerian system are unaware of or totally ignore. Although the concept of the credit rating and scores have been used globally since the 1900s, while the first credit bureau was licensed in Nigeria in 2003, it is baffling how many remain unaware of its potential impact on their lives and businesses. This is obvious in the way beneficiaries manage loan facilities, credit cards, bank accounts and personal finances.
Once an individual or organisation opens an account or applies for a loan, the lending institution sends a report to the credit bureau for a credit score report. This information is updated constantly as the relationship between both parties progress.
A credit score report is report generated based on your financial history, it is the numerical representation of an individual’s credit profile.The simplest explanation of a credit score is a report based on your history of borrowing and repaying money. Because it is calculated over time and cannot change instantly, a person’s financial decisions, made today, will affect tomorrow’s credit score. As a result, credit ratings must be managed intentionally. Are you above or below the average? Do you even know? Even if you’re not seeking to take out a loan, good credit can be a deal-breaker when it comes to things like getting a mortgage on a house, getting a good rate on a loan or being able to take out a loan at all. Those three little numbers can have a big impact on your life, so it’s important to understand steps you can take to keep your credit score up.
Managing your credit ratings
The details of your credit report can have an enormous impact on your financial future. The awareness of your credit history helps in determining what financial decisions are right and which are wrong. In addition, the ability to manage and maintain a high credit score puts you at a favourable position in credit history because most lenders use this to evaluate the probability that a person will repay his debts. Although your credit ratings can positively improve over time with a conscious management of your credit payments, it is always important to be able to access it personally from time to time in case there are discrepancies in the information you have provided.
In Nigeria, the three Credit Bureau companies (CRC, XDS and CRS) can be contacted directly if you are interested in getting information about your credit ratings. Once gotten, it should be reviewed properly and errors should be communicated back to the Bureau so it can be updated. For example, there might be a late payment that you didn’t actually pay late or an account that you never signed up for. Correct all errors as this can lead to poor ratings and negative reputation – even a wrong address or financial link can influence a person’s credit score.
You can also choose to subscribe to the Credit monitor service afforded by the Credit Bureaus.Keeping an accurate credit history is very important. You run the risk of ruining your reputation and reducing your access to credit facilities for business and personal growth, when you do not monitor your loans and account activities regularly.
Factors that affect credit ratings
There are several factors that influence the credit ratings of an individual. These parameters are used as benchmarks in determining the credit ratings of individuals or corporations.
Amount Owed – This entails how much of available credit the subject is using, it reveals the amount owed in subject amount and number of accounts with balances.
Payment History – Your repayment history is a critical determining factor as it reviews your degree of compliance to agreed payment terms such as ‘frequency’ and ‘time’. Late payments directly impact your credit ratings which in turn lowers your credit score. Also note that the higher the number of missed payments or defaults, the higher the risk, and possibly, the higher the interest rate charged when applying for a loan.
Length of Credit History – A longer credit history matched with a good payment history would increase your credit ratings. If your report shows a responsible credit management, a short credit history would also be likely to increase your ratings.
Pursuit of New loans – If the subject just recently applied for a new credit, this would also be taken into consideration.Credit Mix – The type of loans borrowed in the past is a critical factor, having a mix of credit types (mortgage loans, personal loans, credit cards etc.) can improve your credit ratings.
So what is a hopeful borrower to do if he wants to get the best rate and chance for approval?
The key to managing credit rating is understanding that it is a history of financial management – history that cannot be changed overnight. Financial decisions today will affect decisions to be made tomorrow.
My confidence as a lender in you is determined on how much I can trust you.If you enjoy any service on credit, be it a loan, or a service like your utility bill, or even your tax returns, it is imperative that you ensure you make regular prompt payments this will build trust and confidence and ultimately catapult you to the top of the borrowers food chain.
Don’t forget, your character is who you are but your reputation is who people think you are.Ogundeyi is the Founder & CEO Kudi Capital Management, a FINTECH company
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