The Beginner’s Guide to Credit Scores in Nigeria

Credit score is unique credit rating system that shows lenders how risky it is to lend to you. When reviewing your loan application, banks check your credit score and use it to determine your repayment ability.

A higher credit score depicts a reliable and credible borrower. Borrowers with credit scores of 800 and above are considered excellent while credit scores below 650 are regarded as poor. If you have never taken a loan, your credit score will be zero, and the bank would be less likely to lend you a large sum of money. They would lend you a limited amount initially until your credit score is built.

What determines your credit score?

Your credit score is determined by your credit history, in particular the following factors:

• Payment History — This shows whether you make your payments on time and it is used to determine the likelihood that you will delay in repaying loans. It is the single most influential factor of the credit score and it contributes 35% to your score. To what extent did you comply with payment terms on your previous loans?
• Amount Owed — This is determined by the amount of debt you have, the relation of your loan balances to the original loan amount and, for people with credit cards, the ratio of your credit card balances to your credit limit. It is the second most influential factor of the credit score and it makes up 30% of your credit score. How much do you currently owe your lenders?
• Types of Credit Owed — The wider the variety of credit on your report, the better. Types of credit include term loans, revolving loans and asset financing . A mix of different kinds of credit can slightly increase your credit score as this factor makes up 10% of the credit score.
• Number of credit inquires/requests — Each time you apply for a new loan, the lender conducts an inquiry into your credit history. This is called a “Hard Inquiry” and it slightly reduces your credit score. Thankfully, only the inquiries made in the last 12 months factor into your credit score and inquires completely disappear from your report after 24 months. Note however, that checking your own credit report results in a “soft” inquiry , which does not affect your credit score. This factor constitutes 10% of your credit score.
• Length of credit history — This is determined by the age of your oldest loan. Having an “older” credit history is better for your credit score because it shows that you have a lot of experience handling credit. Although you can achieve a good score with a short credit history, an extended credit history increases your credit score. The credit history age makes up 15% of your credit score.

How can you check your credit score?

As a Nigerian, you can get a free credit score per annum from any registered credit bureau and review it for any inaccuracies or incomplete information in your credit history. You can also determine your credit score by applying for a free credit report from any of these parties:

1. Apply on the CRC Credit Bureau website. CRC offers a free report every year.
2. You can also access a free credit report from Credit Registry’s website. Credit Registry also offers a free report on an annual basis.
3. You can also get a free credit report from Carbon.
4. Kola credit also offers free credit reports to Nigerians

When checking your credit report, it is important to confirm the correctness of your personal information and payment history. Is all the information stated accurate? Is there additional information that does not apply to you? If you see any information that is wrong or incomplete, you should contact the lender immediately. You could also file a dispute with the credit bureau that provided the credit report.

How can you improve your credit score?

A low credit score can affect your financial reputation and reduce your chances of getting funding for your business. But don’t fret, you can always increase your credit score. Here is how:

1. Make payments on time: Payment history makes up 35% of your score. Even if your credit score is low, start to make payments on time now and watch your credit score increase.
2. Credit Monitoring: You should constantly monitor and review your credit to know what is benefitting you and what should be repaid immediately. Credit monitoring will also help you act quickly against identity fraud, a phenomenon that is plaguing Nigeria today.
3. Limit Request for Credit Inquiries: The more requests for credit you make, the more hard inquiries will be conducted on your account, which will reduce your credit score. Minimizing your requests for credit will boost your credit score.
4. Pay off Debts and maintain a low balance on Credit Cards: Borrowers who have paid off their debts and have low credit utilization ratios usually have high credit scores. A low credit utilization ratio illustrates that you have not utilized the entirety of your credit limit and shows your ability to manage debt.

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