Credit score, is not usually considered as part of our day-to-day language in Nigeria. However, in other countries and certain cases where one would like to take a loan from a bank, the term loan credit is often used.
Credit score, how it credit loan score works, and how it affects your loan application. All this will be discussed in this article.
What is a credit score?
A credit score is a 3-digit number, between 300 to 850 according to the VantageScoring mmodel.
It indicates the level of risk associated with granting a credit or loan to a prospective borrower. The lower it is, the higher the risk and shows that there is a high chance that the customer may default in payment, and vice versa.
In general, a credit score is a representation of your creditworthiness.
The credit scores are ranked through excellent, good, average or poor.
- 720 and above: Excellent credit
- 690-719: Good credit
- 630-689: Fair credit
- 300-629: Bad credit
A Good verse A Bad Loan score
Good Credit Score: Someone with a track record of making all credit payments on time, clearing debt balance, and taking justified loans will have a good credit score. Any credit score which has credit utilization below 30% is considered a good score.
Bad Credit Score: A bad credit score generally falls below 630 on a scale of 300-850 for the most common scoring models, FICO and VantageScore. Scores of 630 to 689 are considered fair credit.
What factors impact your credit score?
- Debt Accumulation: Outstanding debts can greatly weaken your credit score. In the same vein, paying up your debts late can also negatively impact your creditworthiness.
- Constant credit applications it is essential to manage how often you apply for credit. If you apply too many times, you can further weaken your score. Try to space out your applications to avoid this.
- When you travel out of Nigeria and you do receive a credit card from your bank, be sure to use it wisely and within limits. Using the credit card within limits and ensuring timely payment of the bills will positively impact your credit score.
- Check your credit score regularly: This helps to know how well or how terribly you’re doing at managing your credit. It can also help you to identify any inaccurate or incorrect information and rectify it.
Importance of having a Good Credit Score?
- You are eligible to apply for low interest loans, car loans, home loans, and other personal loans from lenders as they first check their credit scores to determine their creditworthiness.
- Secure higher credit limits on credit cards: Although they are not so common or widely used, credit cards can be gotten in Nigeria, but until recently, they were majorly acquired on special requests from your bank. A good credit score is an indicator of your creditworthiness and you can take advantage of that in the form of higher credit limits on your cards.
- Access to highly rated credit cards: Several financial institutions offer best-rewarding credit cards to customers with good credit scores. These cards often come with certain privileges in the form of discounts on different online shopping platforms, cash back, complimentary movie tickets, discounts at luxury dining restaurants and hotels, travel miles, and much more.
- Eligible for a pre-approved loan offer: A good credit score will increase your chances of being able to get pre-approved loans at low interest rates from banks and financial institutions.
How to check your credit score
Every Nigerian is entitled to one free Credit report every year from any registered Nigerian Credit Bureau. To get a free credit report in Nigeria, use any of the following sources:
- Dial the USSD code *565*8# on your mobile phone to get instant Credit reports from CRC Credit Bureau. This service is currently available to MTN subscribers only. Read about ALAT USSD Code and how to use them
- Get a free credit report from Nigeria’s first independent licensed credit bureau. You only get one free report per month.
Do credit scores affect other loan applications?
Yes they do. The first thing lenders will look out for when considering your loan application is your credit score.
This is why it is particularly important to pay attention to your credit report. It determines whether lenders and creditors will do business with you and how good of an interest rate you get on financial products!