If you have ever tried applying for a loan, you probably understand why having a GOOD credit score is crucial.
In Kenya, credit scores are collected and tabulated by the Credit Reference Bureau (CRB), which provides lenders with information on your trustworthiness.
So what’s the point of this?
You see before a bank or loaning institution can give you money, they have to decipher whether you will pay them back on time. These institutions are there for profitmaking rather than goodwill. Therefore, you will certainly not get a loan if you have a low credit score.
They get this information from credit reports of your history of transactions in finance institutions.
Your credit score (a 3-digit figure) is based on your credit report and therefore if you want to get a loan in the future with low-interest rates, consider reading to the end of this piece. Here, you will understand and know how to improve your credit score.
How lenders use credit reports and scores
Anytime you take a loan from a financial institution, the data includes whether you pay the debt on time. Of course, loan repayment depends on how well you use the money to yield profit.
You certainly won’t be able to pay back promptly if you use the money for parties and leisure. Therefore, before making any loan applications, assess how necessary the loan is.
Lenders use your credit scores in credit reports to predict your possibility of defaulting. Additionally, it tells a lender how responsible you have been with credit when each of your accounts was opened and your track record of making loan payments on time.
Universally, credit scores range from 300 (lowest) to 850 (highest). This is the most widely used credit score system used on the planet. It was developed by FICO (Fair, Isaac, and Company).
High credit scores (720-850) generally put you in an advantageous position. You will be able to negotiate for lower interest rates as compared with loanees with scores between 300-600. Note that lending institutions are in the money-making business and therefore, you will have to convince them that you need a lower interest rate, translating to a lower profit margin for them.
Anyone with a score of 700 and above generally qualifies for better lending rates. It is up to you to bring up this conversation with your lender.
How to obtain and fix errors in your credit scores and reports
To know your creditworthiness, you have to get your hands on a copy of your credit report, so that you know what financial institutions are reviewing before loaning you.
Several institutions will provide you with your CRB status. They include;
- Metropol Credit Reference Bureau Limited
- Transunion Credit Reference Bureau CRB Kenya
- Credit Info CRB Kenya
Getting your credit reports from the three institutions listed above is not free. You will have to part with between Ksh.50-Ksh.250.
Note: These institutions are not part of the government, but private entities regulated by the Central Bank of Kenya.
After getting your report, carefully inspect it to ensure no errors are made. CRBs are prone to errors ranging from people having similar names to listing bills paid off as debt you owe lenders.
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In such cases, you should contact the Credit Reference Bureau via email or phoning them to request the correction of mistakes in your credit report.
AVOID credit repair firms that claim they can fix your Credit Report discrepancies. Often, they charge outrageous amounts and then fail to keep their end of the deal.
How to improve your credit reports and score
Refrain from using unscrupulous methods to buy high credit scores. These methods eventually fail and you may get surrounded by myriads of lawsuits. Instead, follow these simple steps;
- Check your reports for accuracy – Request your credit report, analyze it and contact the CRB agencies or lenders for fixable problems.
- Make sure you pay your bills on time – Water, electricity, subscriptions, etc., should be paid off on time. If you are generally a forgetful person, consider using automatic billing systems so you don’t have to manually settle your debt. This saves you a lot of trouble.
- Be loyal to your credit card provider – The number of credit cards you have influences your credit scores. If a different credit card company approaches you with a more attractive deal, consider talking to your initial credit finance company to adjust interest rates to what the other lender offers. No company wants to lose a client.
- Limit your total debt and number of debt accounts – Settle all your pending loans to improve your credit score.
Interested in knowing your net worth? READ HERE