In today’s world, credit scores play a vital role in various aspects of our financial lives so it is important to know all about it.
Whether you’re applying for a loan, a credit card, or other credit facilities, your credit score is one of the key factors that determine whether you’ll be approved or not.
Understanding how credit scores work and taking steps to improve yours can take your financial opportunities from 0 -100 real quick!
In today’s post, we will tell you all about the fundamentals of credit scores and what influences them even as we provide practical tips to help you improve your credit score.
What is a Credit Score?
A credit score is a numerical representation of your creditworthiness. In most cases, financial institutions and other lenders use credit scores to assess the risk of lending money to an individual.
The higher your credit score, the more likely you are to be considered a low-risk borrower, leading to better interest rates and loan terms.
In Nigeria, credit scores are typically calculated by credit bureaus using the Credit Bureau Risk Rating (CBRR) model. The CBRR model assigns a score ranging from 300 to 850, with a higher score indicating a lower credit risk.
What Factors Affect My Credit Score?
There are a lot of factors that affect or determine your credit score and some of them are:
- Your Payment History:
This is the most significant factor influencing your credit score. Making payments on time is crucial to maintaining a good credit score as late payments, defaults, or accounts sent to collections can have a severe negative impact on your score
- Your Credit Utilization Ratio:
This is the percentage of your available credit that you’re using. Keeping your credit utilization below 30% is advisable. High utilization suggests you may be relying too heavily on credit, and this can lower your score.
- The Length of Your Credit History:
The longer your credit history, the more data lenders have to assess your financial behavior. It’s important to keep old accounts open, even if you’re not actively using them.
- Your Credit Mix:
Having a diverse mix of credit accounts, such as credit cards, loans, and mortgages, can positively impact your credit score. This demonstrates your ability to manage different types of credit responsibly.
- Your Credit Application Rate:
Every time you apply for credit, a “hard inquiry” is recorded on your credit report. Having multiple inquiries in a short period may indicate financial instability and lower your score. Aim to limit new credit applications unless necessary.
How Do I Improve My Credit Score?
- Pay Your Bills on Time:
Consistently make payments by their due dates. Be sure to set up reminders or automatic payments so that you don’t always miss payments.
- Reduce Credit Utilization:
Aim to keep your credit utilization ratio below 30%. Pay down existing balances and avoid maxing out credit cards.
- Build a Positive Credit History:
If you have a limited credit history, consider getting a secured credit card or taking out other credit or loan facilities that you can manage responsibly to build a positive credit record.
Taking out a Rosabon Loan is a great way to build your credit score as our loans are affordable and easy to access with enough repayment tenor to help you achieve your financial goal.
Make small, regular purchases and pay them off promptly.
- Monitor Your Credit Report:
Regularly review your credit report for inaccuracies or fraudulent activity. Dispute any errors you find to ensure your credit score accurately reflects your financial behavior.
Obtain a copy of your credit report from one of the credit bureaus in Nigeria and review it for any errors or discrepancies. If you find any inaccuracies, report them to the respective credit bureau for correction.
- Limit New Credit Applications:
Be selective when applying for new credit. Only apply for credit when necessary, and try to space out applications to avoid multiple hard inquiries in a short period. Each credit application can leave a footprint on your credit report, potentially impacting your score.
Maintain a Healthy Mix of Credit:
Strive for a diverse credit portfolio that includes different types of credit accounts including credit cards, loans, and mortgages.
A diverse credit mix can demonstrate responsible credit management and your ability to manage various financial responsibilities.
Seek Professional Advice:
If you find it challenging to improve your credit score on your own, consider consulting with a reputable financial advisor who can provide personalized guidance.
Your credit score plays a significant role in your financial journey, influencing your access to credit and the interest rates you may receive.
Understanding how credit scores work in Nigeria and taking proactive steps to improve yours can set you on a path to financial success.
Remember, improving your credit score is a journey that requires discipline and patience, but the long-term benefits are worth it as it helps you to unlock better financial opportunities