4 Ways To Improve A Poor Credit Score

Are you looking for ways to improve your poor credit score because you intend to take a loan in Nigeria? Well, look no further as the solution to your dilemma may not be as difficult as you think.  

When it comes to getting loans, some factors that ensure you as a borrower get a good deal may include your income and employment history, debt-to-income ratio, collateral value, existing loan term, and credit score.  

What is a credit score? 

A credit score is a number from 300 to 850 that rates a consumer’s creditworthiness. The higher the score, the better a borrower looks to potential lenders. 

A poor credit score on the other hand leads to higher interest rates or sometimes, outright denials of a loan. 

A good credit score is proof that a borrower honours his or her loan obligations. It is usually calculated based on credit history, total debt levels, repayment history, and other factors.  

There are three credit bureaus in Nigeria licensed by the Central Bank; CRC Bureau Credit Limited, CR Services Credit Bureau PLC, and XDS Credit Bureau Limited. 

This trio is responsible for collecting, analyzing, and disbursing information about consumers in the credit markets. 

What are credit scores used for? 

A credit score is primarily used to determine a potential borrower’s credit behaviour, such as how likely they are to pay a loan back on time. 

Loan companies in Nigeria also use credit scores to make decisions on whether to offer a borrower their credit products. 

They are also used to determine the interest rate and credit limit borrowers receive. 

Why you don’t need a poor credit score 

A poor credit score can cost you a lot of money in the long run. But that is just the summary. That is why when you find yourself in that situation you should take steps to improve your credit score as quickly as possible. 

There are several ways a good credit score may prove useful to the potential borrower. 

Advantages of having a good credit score 

As earlier stated having a good credit score can help you save money on your next loan.  

A high credit score means that you will most likely qualify for the lowest interest rates and fees for new loans and lines of credit. 

When you have a good credit score, you’re more likely to meet lending approval guidelines and borrow money when you need it. 

With a good credit score, you can also access perks and enjoy the best rewards  

A person with a good credit score enjoys a good reputation with borrowers and doesn’t have to look far for offers.  

Habits that may hurt your credit score 

As a borrower, some of the actions you take can negatively impact your credit scores. Before approving your loan application, lenders are known to evaluate your spending pattern to determine your level of financial responsibility.   

Another thing they look out for is your credit score. A poor credit score may lead to outright denial of your loan application.  

Below are some of the habits that may cause you to have a poor credit score: 

1. Making a late payment 

Your payment history on loans can play a prominent role in calculating credit scores. One late payment on a loan can result in a decrease.  

In addition, late payments, if not improved upon, can remain on your credit report for years. It’s always advisable to pay your bills on time, every time.  

2. Having a high debt-to-credit utilization ratio 

A debt-to-credit utilization ratio is how much of your available credit you’re using compared to the total amount available to you.  

Lenders and creditors generally prefer to see a lower debt-to-credit ratio, which is usually below 30 percent.  

3. Applying for multiple loans at once  

Applying for multiple credits, especially from loan apps in Nigeria, can greatly impact your credit score and cause lenders to view you as a higher-risk borrower.  

In addition, some credit scoring models may take your recent credit activity into account. 

4. Pausing your credit-related activities  

This may seem contradictory if you have had little or no financial transactions in months. It may make it more difficult for lenders and creditors to evaluate your application for credit or services.

Also, after a certain period, which varies depending on the lender or creditor’s policies, your credit account may be considered “inactive” and closed by the lender.   

That, in turn, may impact credit scores in the same ways as if you had closed the account. If you want to keep the account active, you may want to consider using it responsibly every few months, if only for small purchases.  

By observing any, or all of these four steps, you are on your way to improving your credit score.  

Ways to improve a poor credit score 

It’s possible to improve your credit scores by following a few simple steps.  

It may be difficult to know how to start but by following the four steps listed below, you are on your way to improving your poor credit score.  

1. Take credit builder loans 

Not many loan apps in Nigeria offer this service, but it is a great way to start rebuilding your poor credit.

A credit builder loan is a unique way to help you build or rebuild your access to finance through your credit score, regardless of your credit history. 

With a credit-builder loan, you make fixed payments to a lender and then get access to the loan amount at the end of the loan’s term. 

That way, it is assured that you will not default on your payment, thereby fixing your credit history. 

Other loan facilities like quick loans or personal loans can also help in this regard.  

2. Don’t miss payments 

Your payment history is one of the most important factors in determining your credit score. Having a long history of on-time payments can help you achieve excellent credit scores. To do this, you’ll need to make sure you don’t miss a loan payment by more than 29 days. Payments that are at least 30 days late can be reported to the credit bureaus and hurt your credit scores. 

Setting up automatic payments for the minimum amount due can help you avoid missing a payment.  

3. Opt for Less than 30% Credit Utilization 

Using only 30% of your available credit is a good idea, but even less is better. The credit utilization rule of thumb states that consumers should aim to use 30% or less of their available credit to maintain a healthy credit score.  

Some experts say it’s best to keep your balances as close to zero as possible.  

4. Stay away from multiple loans 

Yes, you may not have control over when you will need urgent cash, but being financially responsible is key to improving your poor credit score.   

While some loans in Nigeria like quick loans or payday loans are good for building credit, taking out multiple loans at the same time may hurt your credit.  

By taking out two or three loans, you run the risk of missing a payment thereby plunging yourself into a more financial mess.  

How Long Does It Take to Rebuild a Credit Score? 

There’s no set timeline for rebuilding your credit. How long it takes to increase your credit scores depends on what’s hurting your credit and the steps you’re taking to rebuild it. 

For instance, if your score takes a hit after a single missed payment, it might not take too long to rebuild it by bringing your account current and continuing to make on-time payments.  

However, if you miss payments on multiple accounts and you fall over 90 days behind before catching up, it will likely take longer to recover.  

Bonus tip 

Regularly checking your credit score is one way to keep track of your credit accounts. 

You’re entitled to a free copy of your credit reports from each of the three nationwide credit bureaus. 

Visit nairaCompare to check your credit score for ₦600 only.