A credit score is an evaluation used by financial institutions to describe a loanee or consumer’s (Individual or Corporation) creditworthiness. A higher credit score depicts a reliable and credible borrower. A credit score is determined by the credit history of the borrower, which entails several open accounts, repayment history and total level of debt. Credit scores are used by lenders to determine the probability that a borrower will repay their loans.
The credit score play’s a key role in a lender’s decision to give loans. A borrower with a lower credit score infers that a financial institution bears more risk loaning such borrower. A high credit score is considered good as it makes the interest rates of loans reduce; and also makes the application process for a letter of guarantee easy. Therefore, a high credit score may result in a loanee receiving lower interest rates on a loan.
Sometimes credit scores are also used to determine the size of an initial deposit required to get several kinds of loans. Lenders also used credit scores in deciding the interest rate or credit limit on a credit card.
In Nigeria, the credit scores of financial institutions will vary depending on the institution.
We’ll look at 5 factors to consider when calculating a credit score, they are:
Endeavour to make your payments on time, and if you have down payments to make.
Reviewing your credit reports helps to know what is benefiting you. You can request your credit report from your financial institution, then you can run a personal assessment to see what may help or potentially hurt your score.
Using credit monitoring services is a simple way to monitor credit score changes over time. These services monitor changes in your credit report, such as a paid-off the account or a new account opened. Credit monitoring also helps to prevent identity fraud.
The number of requests you make for new credit should be minimal. Too many requests for credit is known as hard inquiries. For example, if in the past you’ve requested for a new credit card loan, car loan, mortgage loan or some other form of a loan, it can negatively affect your score. A lender could interpret the borrower is facing financial difficulties and therefore be a bigger risk to the lender.
Borrowers with high credit scores often have very low credit utilization ratios. A low credit utilization ratio illustrates that you aren’t in debt and haven’t maxed out your credit cards. It shows that the borrower is likely to know how to manage credit well as lenders can be wary of loanees with low credit scores.
You may consider opening new accounts to add to your credit mix.
A good credit score makes a lender consider you highly for a loan in Nigeria. It also helps you get the best interest rates when you intend to loan. Since you never can tell well you might be needing a loan, it is wise to ensure that you’re as good as possible by regularly checking your credit report, having a positive payment history, having low balances on your credit cards and minimal inquiries for credit.