Do you have a poor credit rating and it is hampering your financial transactions? Here are the six best loans to help you build your credit score.
When it comes to accessing loans in Nigeria, your credit score is one of the most important measures of your financial well-being. It tells lenders at a glance how responsibly you use credit. The better your score, the easier you will find it to be approved for new loans or new lines of credit. A higher credit score can also open the door to the lowest available interest rates when you borrow.
What is a credit score?
A credit score is a 3-digit number, from 300 to 850 using the VantageScore model. It is used to indicate the level of risk associated with granting credit or a 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 on payment and vice versa. The scores are ranked as excellent, good, average, or poor. Simply put, a credit score is a representation of your creditworthiness.
Below are creditworthiness scales:
- 720 and above – Excellent Credit
- 690-719 – Good Credit
- 630-689 – Fair Credit
- 300-629 – Bad Credit
Lenders and creditors often use credit scores for various risk assessment purposes ranging from market expansion, and pre-qualification of customers, to credit evaluation.
Why Does a Good Credit Score Matter?
According to Investopedia, an excellent credit score can save you a lot of money over time. For instance, someone with excellent credit gets better rates on loans, mortgages, and everything that involves financing.
Individuals with better credit ratings are considered lower-risk borrowers, with more banks competing for their business and offering better rates, fees, and perks.
On the flip side, those with poor credit ratings are considered higher-risk borrowers, with fewer lenders competing for them and more businesses getting away with high annual percentage rates (APRs) because of it.
More importantly, borrowers with good credit scores are 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.
Building better credit
If your credit score is presently in a poor state, there are steps you can take to make it better. That way, you can access better offers for loans in Nigeria. This also applies to those with a great credit score who intend to keep it that way.
The steps you can take to improve your credit score may be things you work on over the course of weeks or months. Others are doable in a single day and will help your credit improve quickly:
Some of the immediate steps you can take to improve your credit score include;
1. Pay off debts on time
Pay bills and any existing lines of credit on time if you possibly can. Paying only the minimum is fine if that’s all you can manage.
In a situation where you can’t meet up with a scheduled payment, contact your creditor to see if other arrangements can be made, at least for now.
Your payment history is the single biggest factor affecting your credit score. When you are rebuilding credit, you cannot afford to have a payment reported as late.
2. Keep a minimum credit limit
This is known as ‘Credit utilization’. It is the percentage of your credit limit you’re using. The amount you use has a powerful effect on your credit score — only paying on time matters more.
Most experts recommend going no higher than 30% of the limit
3. Get a credit-builder loan
As the name suggests, a credit-builder loan has one purpose: to help you improve your credit profile. You’re most likely to find one at a credit union or a traditional bank.
Most loan apps in Nigeria are known to offer credit-builder loans. You’ll have to show proof of income and ability to repay.
In some cases, the lender holds onto the money as you repay, then releases it to you once you have fully repaid the loan.
4. How to check your credit score
Every Nigerian is entitled to one free Credit report every month from any registered Nigerian Credit Bureau.
To get a free credit report in Nigeria, use any of the following sources:
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.
You can also get a free credit report from Nigeria’s first independent licensed credit bureau. You only get one free report per month.
Also, by filling in the required details on the nairaCompare platform, you can access your credit report at no cost.
Loans that can help you build your credit score
One of the surefire ways of building your credit score is by taking a quick loan and paying them back before and when due.
Quick loans can enhance your credit mix. Although they are high-risk in nature, quick loans can help borrowers build a payment history. Making your loan payments on time helps to establish a positive payment history, which can increase your credit score.
Some of the platforms where you can access quick loans are listed below.
Borrowers on the Carbon loan app can access instant loans without collateral, without guarantors, and get funds within minutes. Early repayment assures an improved credit score.
A product of Wema Bank, Alat offers borrowers quick loans without paperwork, visitation to any physical location, and a fast response time between acceptance of an offer and loan disbursement in minutes.
Borrowers can get as much as ₦2,000,000 without collateral.
Like most of its counterparts, FairMoney is a digital bank that gives instant loans without requiring collateral.
Its quick loan offer can rise to as much as ₦1 million.
OKash makes it efficient for borrowers to access credit anytime, anywhere. Its loan tenor required that loyal borrowers can have their payments spread over 91 days to 365 days.
However, its quick loans have a repayment period of 15 days, making it possible for borrowers to build credit at a fast pace.
One of the most prominent lending platforms in Nigeria, Branch Loan is designed to fit individual needs and help its users grow. As borrowers build credit with Branch, they get to unlock larger loan amounts.
All loans are approved, disbursed, and repaid directly from the app. You also get the opportunity to spread your payments over three months or more, depending on your creditworthiness.
6. Aella Credit
Aella’s loan size ranges from about ₦ 1,500 to ₦ 1,000,000 and is determined by a variety of factors. Its loan tenors also vary per individual but are usually within a month or 3 months repayment period.
Aella also rewards borrowers for repaying loans on time, every time by giving cash back on the interest paid.