Everyone at some point in their lives needs a little extra money. It could be an immediate need like replacing your broken or stolen work laptop or a significant amount of money to keep your business afloat. Whatever the need may be, you may need financial help in the form of a loan. You’d choose to go to a financial institution and apply for an unsecured or secured loan but there are a set of conditions that must be met before the institution gives you the amount you need. Most institutions do a little background check and review your credit score. We’ll use a simple analogy to explain what a credit score is.
Say one day someone you know gives you a call. They are in desperate need of a soft loan and they promise to return it at a specified date. If you have the money, you’d already know if you will give it to them or not, based on previous experience with them. A credit score uses the same concept – analyzing your existing credit data to determine if you can pay back the loan or not. From the analysis, they can calculate how much they can give you, at what rate and payment schedule.
Wikipedia defines a credit score more technically as a numerical expression based on a level analysis of a person’s credit files, to represent the creditworthiness of an individual. A credit score is primarily based on a credit report, information typically sourced from credit bureaus.
Why your credit score is important
The main reason why a credit score is important is because with a good credit score, you have a better chance of getting personal and business loans, with fair interest rates. In some cases, it also helps you get certain services such as medical care. Basically, any financial institution will be more than willing to help you if you’re financially fit.
How your credit score is calculated
Credit scores are informed by a number of factors like how and when you pay your bills, how much debt you have and how your credit behaviour stacks up against that of other borrowers. If you’re having trouble paying your debt, your lender would give you several warning messages to pay on time or you’ll be blacklisted. Most banks take up to 90 days after which the individual is notified of their negative listing on the Credit Reference Bureau (CRB).
You can speak to your DADA By Stanbic Bank account manager to help you get your credit information or get your status from TransUnion using the following procedure:
- Send your name to 21272.
- Then, enter your National ID number.
- Choose CC (meaning Credit Status)
- You’ll then receive your CRB status.
“Good” means you’re not listed while “Default” means you are blacklisted. A good credit score is between 300-850. A score of 700 is considered good.
How you can improve your credit score
Getting blacklisted isn’t the end of the road for you. There are simple ways you can improve your credit score. All it takes is time & discipline. You can improve your credit score by:
- Paying your bills on time. Note that partial payments can negatively affect your score.
- Using credit cards only when necessary.
- Keeping your credit card balances low at all times, or clearing them altogether.
- Limit your credit inquiry. Too many credit applications raise red flags for lenders.
If you happened to be blacklisted and managed to clear your debts, you should reach out to the lender to communicate to the CRB who will remove your name from the list. You’ll then need to acquire a clearance certificate that costs Ksh 2,200.
Becoming financially fit
Now that you know all about the CRB listing, it’s time to become better at your finances and grow your credit score. Take loans only when you have to and ensure you pay your bills on time or earlier. Being disciplined and completely aware of your finances will put you in the good books of your lender and will prevent significant financial damage in the long run.
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