A credit score is a 3-digit number, ranging from 300 to 850 (using the VantageScoring model), that indicates the level of risk associated with granting a credit or loan to a prospective borrower or customer. The lower it is, the higher the risk and shows that there is a high chance that the customer may default in payment, and vice versa. The scores are ranked through excellent, good, average or poor. Simply put, a credit score is a representation of your creditworthiness. Before approving your loan, lenders will check your credit score to assess how risky of a borrower you are. Your score is calculated based on the following factors:

• Payment history:35%
• Current debt amount:30%
• Credit history length:15%
• Credit mix:10%
• New credit activity:10%

The best interest rates for loans usually go to borrowers who have well to excellent credit scores. Good Credit Score: Someone with a track record of making all credit payments on time, clearing debt balance, and taking justified loans will have a good credit score. Any credit score which has credit utilization below 30% is considered a good score.

Why is it Essential to Have a Good Credit Score?

1. You’ll be able to apply for low interest loans, car loans, home loans, and other personal loans from lenders as they first check their credit scores to determine their creditworthiness.
2. Secure higher credit limits on credit cards: Although they are not so common or widely used, credit cards can be gotten in Nigeria, but until recently, they were majorly acquired on special requests from your bank. A good credit score is an indicator of your creditworthiness and you can take advantage of that in the form of higher credit limits on your cards.
3. Access to highly rated credit cards: Several financial institutions offer best-rewarding credit cards to customers with good credit scores. These cards often come with certain privileges in the form of discounts on different online shopping platforms, cash back, complimentary movie tickets, discounts at luxury dining restaurants and hotels, travel miles, and much more.
4. Eligible for a pre-approved loan offer: A good credit score will increase your chances of being able to get pre-approved loans at low interest rates from banks and financial institutions.

What factors impact your credit score?

1. Debt Accumulation: Outstanding debts can greatly weaken your credit score. In the same vein, paying up your debts late can also negatively impact your creditworthiness.
2. Constant credit applications it is essential to manage how often you apply for credit. If you apply too many times, you can further weaken your score. Try to space out your applications to avoid this.
3. When you travel out of Nigeria and you do receive a credit card from your bank, be sure to use it wisely and within limits. Using the credit card within limits and ensuring timely payment of the bills will positively impact your credit score.
4. Check your credit score regularly: This helps to know how well or how terribly you’re doing at managing your credit.  It can also help you to identify any inaccurate or incorrect information and rectify it.

How to check your credit score

Every Nigerian is entitled to one free Credit report every year from any registered Nigerian Credit Bureau. To get a free credit report in Nigeria, use any of the following sources:

1. Dial the USSD code *565*8# on your mobile phone to get instant Credit reports from CRC Credit Bureau.  This service is currently available to MTN subscribers only
2. Get a free credit report from a reputable credit institution in Nigeria. You only get one free report per month.

Who Can See Your Credit Report?

Fortunately, not everyone can see your credit score. In actual fact, there’s a short list of people or entities that can access your credit report and these people or organizations must have what is known as a “permissible purpose”, which includes.

• An applicant or a guarantor for credit
• Review, renew, restructure or monitor credits
• Employment checks
• Prospective tenants
• Underwrite, review, or renew insurance policies or analyze insurance claims
• Application for credit contracts or other post-paid services
• Debt collection, enforcement of a monetary judgment or enforcement of any other debt
• Carry out KYC checks on any person for any permissible purposes
• Directive of a regulatory authority or a public body
• Compliance with a court order

People who can see your credit score include;

• Banks, specialized banks, and other financial institutions

To ensure you have a decent and healthy credit score, please be judicious to your financial obligations in terms of loan repayments and others. This gives you a good score and gives you leverage.