How to Improve Credit Scores in Nigeria

A credit score is a number, usually between 300 and 850, that tells lenders how you handle loan repayment.

It is a representation of your creditworthiness, and a good score (typically 700 – 850) shows that you pay your bills on time, while a bad score (below 600) shows that you do not and that lenders should be weary of providing you credit since you are most likely to default.

It is common, as Nigerians, to not understand what a credit score is, not to talk of seeing the need to improve it. But a credit score affects your life whether you are aware of what it is or not since creditors, landlords, employers, and all authorized financial institutions registered can use your credit score to determine if they will grant you loans, credit cards, or credit facilities in general.

Before you can start to improve your credit score, you must first:

• • Check your score by requesting a credit report from a credit bureau

• • Check for errors and dispute them

• • Understand how the scoring process works

• • Determine the areas that are legitimately hurting your score

After doing all of these, you can then take appropriate actions to improve your score.

Check your credit score

Your credit score is always included in your credit report. This report is collated and updated by a credit bureau.

A credit bureau is an organization that collects and collates credit information on individuals and businesses with the main purpose of creating credit reports. There are three major credit bureaus in Nigeria; CRC Credit Bureau Limited, CreditRegistry and FirstCentral.

The credit report also contains your:

• • Personal details (Name, Address, date of birth, etc.)

• • Bank Verification Number (BVN)

• • National Identity Number (NIN or any other means of identification)

• • Credit payment profile

• • Credit account details

• • conditions for credit (original debt and balance outstanding)

• • Other public records

Check for errors and dispute them

Not all credit scores have to be improved. Your credit score might be healthy but look poor because of errors in your credit history. These errors may come from:

• • Wrong account balances

• • Duplicate accounts

• • Wrong dates of loan repayment (that make it look like you made late payments on your loans)

• • Wrong opening and closing dates on accounts

• • Wrong personal information

• • Credit activities not performed by you

These errors may be the causes of your bad credit score, and your credit score can instantly be made healthy by disputing and rectifying the errors with proper evidence.

After checking for all possible errors and resolving them, you can proceed to the next step if there is still a need to improve your score.

Understand how the scoring process works

If you hope to effectively increase your credit score, you must understand how the scoring process works.

Different credit bureaus create credit reports using the same weighting factors. Each credit bureau places different emphasis on the weighting factors to eventually create a score, but the scores always range between 300 to 850. The FICO, VantageScore and Experian models are all equivalents of each other.

Factors that are considered in the scoring process include:

• • Payment history

• • Credit limit

• • Credit utilization

• • Debts

• • Length of credit history

• • Accounts

• • New Credit

You can go here to check for all you need to know about the scoring process.

After this, you can then determine the areas that are hurting your score to know the strategy you will use to improve it.

To improve your credit score, you must:

• • Pay your bills on time

• • Use credit responsibly

• • Do not apply for too much new credit at once

• • Actively continue to monitor your credit history for errors

• • Consider credit-building tools

Pay Bills on Time

Payment history is a major factor in credit scores, no matter the credit bureau. It is important to make sure all bills are paid on time, as one late payment can severely hurt your scores.

Your credit history might show that you have always been paying your bills one time, but one default can bring down the score by a large number.

This also depends on how late the payment is and how often you make subsequent late payments in the future, no matter the reason for the default, so it’s best to take repayments seriously.

Your credit card bills, loans, utilities, and other bills are reported to credit bureaus, so any late payments or missed payments will affect your credit scores.

To avoid late payments, it is advisable to set up automatic payments of your bills on your accounts, so your repayments are always up to date. This saves you the headache of having to remember (or setting multiple reminders) the due dates on all your bills and repayment of loans.

This method requires your account to be duly funded, and even if the funds in your account are not up to be bills that need to be paid, you will receive notifications.

Other ways to avoid late repayments include:

• • Set up timely reminders on your calendar

• • Consider using account managers

• • Consider weekly repayments

Use Credit Responsibly

Credit utilization is the amount of an individual’s or business’s available credit that is being used.

Your utilization should be kept as low as possible, as this is another important factor in credit scores.

If your credit utilization is high and your debt is also high, your credit scores can never be healthy. It is advisable to only use credit when you need it to help you improve your scores over time.

Ways to keep your credit utilization low include:

• • Paying more than the required payments on your debts each month

• • Using credit responsibly

• • Taking a new credit card

• • Increasing your credit limit

• • Managing your expenses

• • Paying off your expenses on the same day

• • Not closing unused cards or credit cards after you’ve finished paying them off

• • Using more than one credit card

• • Paying off your credit card balances with personal loans

If your credit utilization is already very high, you need to consider employing many or all of the solutions listed above to reduce your credit utilization or manage it, as you cannot simply wipe it and start all over again.

Don’t Apply for Too Much New Credit at Once

When you check your credit score, or when organizations check your credit score for reasons other than granting you a new line of credit, it is called a soft check/inquiry, and you are allowed, and even encouraged to check your score as much as possible to stay in control of your credit history.

Soft checks include:

• • Checks by potential or current employers

• • Credit monitoring services

• • Self credit check

• • Credit limit increase or decrease

When lenders and creditors check your score to make a decision on credit facilities concerning you, because you’ve applied for new credit, it is called a hard check/inquiry.

Hard checks include:

• • Credit check for loan applications

• • Credit check for credit card applications

• • Credit checks by landlords

Hard checks/inquiries take points off your credit score. These points are insignificant individually, but too many could significantly damage your scores.

This is one of the reasons applying for too much new credit at once can be a bad idea.

Another reason that applications for too much credit can hurt your scores is that it is seen as a sign of financial instability and desperation. It is better to space out credit applications over time as opposed to applying for multiple forms at the same time.

Dispute Errors on Credit Reports

Errors can appear on your credit report at any point. Just because you’ve disputed errors at some point concerning your credit history does mean no more errors will pop up.

This is why it is always best to closely monitor your credit file to discover and dispute innocent errors through misinformation or errors that arise from fraudulent activities.

Credit bureaus have a process in place for disputing errors on credit reports, and it’s important to follow this process to ensure that errors are corrected.

Consider Credit-Building Tools

Some tools can be used to improve your credit scores, such as secured credit cards and credit-builder loans, which help individuals and businesses build or improve their credit scores.

Secured credit cards require a security deposit, which is used as collateral in case the individual or business is unable to make payments. This lowers the risk credit card companies take when giving people with low credit scores credit cards.

If you take a secured credit card and you manage it well by making repayments on time and keeping your credit utilization low, your credit score will increase, and the credit card company might consider awarding you an unsecured credit card.

Credit-builder loans are small loans that are designed specifically for building or improving credit scores. Instead of the traditional loan process, where you take the money and pay it back in instalments over time, you instead make payments to a lender and get the loan amount after you’ve completed the fixed payments at the end of the loan term.