According to Wikipedia, a credit score “is an evaluation of the credit risk of a prospective debtor, predicting their ability to pay back the debt, and an implicit forecast of the likelihood of the debtor defaulting.”
In other words, a credit score is a number that rates how risky you are as a creditor. Risk could mean your ability to repay a loan and/or how likely you are to default on a loan.
Think of it as a secondary school report card – you’re given an overall score based on how you’ve performed in various subjects. In terms of credit scores, factors like how much you borrow, how often you borrow, time taken to repay or number of defaults and so on are subjects that determine your overall score. The general formula for calculating credit scores is shared below:
- 35%: payment history
- 30%: amounts owed
- 15%: length of credit history
- 10%: new credit and recently opened accounts
- 10%: types of credit in use
Investopedia describes a credit score as “an assessment of the creditworthiness of a borrower in general terms or with respect to a particular debt or financial obligation. A credit rating can be assigned to any entity that seeks to borrow money — an individual, corporation, state or provincial authority, or sovereign government.”
This means that credit scores are not limited to FairMoney customers. Anyone looking to borrow money anywhere in the world – including governments, companies or states – will need to have a good credit rating/score before they can access the finance they seek. This is why it is very important to be a good borrower so that you can have a good credit score.
Now, you may be wondering why we are shouting credit score up and down. Why is it so important? Well, no lender (like FairMoney) anywhere in the world lends money without considering the borrowers’ (you and other customers who need loans) credit rating. Even the biggest businessmen and businesswomen in Nigeria can’t access loans if they don’t have good credit scores.
We encourage our FairMoney customers to borrow within their means so that they can pay back timely and continually build a great credit score. It will give you access to higher loans at lower interest rates and even flexible payment terms.
Apart from lenders, there are also organisations called credit bureaus, who analyse and assign credit ratings to individuals. This information is often shared with banks and other lenders, especially those that give no collateral loans like FairMoney. This is an additional thing we use, among other information to determine who can access our loans and who can’t.
If you get rejected for a FairMoney loan and are asked to retry in 15 days, there’s a likelihood that your credit score is very low and you have to grow/build your credit score so that you are able to access the loans.
Maintaining a good credit score, history or rating is the key to building a financially rewarding future.
Don’t carry last. To the moon!