By Elizabeth Adegbesan
As a bank customer, you have the opportunity to access credit in any bank. All you require is a good credit score. Your credit score is a number that represents your credit-worthiness.
It summarises the information in a credit report (an account of your borrowing and repayment history across all sectors of the economy) and enables lenders to evaluate your credit risk. The higher your credit score, the lower your risk may be to the lender.
Your credit score comprises five components that have associated weights: payment history, amounts owed, length of credit history, how many types of credit in use, and account inquiries.
Tips for building a good credit score
Know the five key elements: Be familiar with the rating scale attached to each of the five key elements used in calculating your credit score. They are; payment history (35 per cent), amounts owed (30 percent), length of credit history (15 per cent), new credit (10 percent) and the type of credit used (10percent).
Pay your bills on time: Payment history is one of the primary categories used in calculating your credit score. Therefore, paying your bills on time is one of the important steps to take in raising and maintaining your credit score.
Manage your debt: Loan balances and lines of credit increase your level of debt. Having too much debt can reduce your points on your credit score. The lower your debt, the easier it will be to maintain a good credit score.
Monitor your credit regularly: It is relevant to monitor information on your credit report. This will enable you to take the needful steps to improve it when necessary. You can request your credit report from any credit bureau in the country to know your credit worthiness.
The disadvantage of a bad credit score
A good credit score will give you easy access to credit with low-interest rates and little or no collateral. Having a bad credit score has the following disadvantages.
High-interest rates: Having a bad credit score indicates you are a riskier borrower. If you’re approved with a bad credit score, you’ll pay more interest on loans or credit cards over time.
Non-approval of credit card and loan applications: Creditors are willing to accept a certain amount of risk. However, if your credit score is too low, they might not want to lend to you at all.
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Denied employment: Certain jobs, especially those in upper management or the finance industry, require you to have a good credit history. You can be turned down for a job because of negative items on your credit report, especially high debt amounts, bankruptcy, or outstanding bills.
Difficulty starting your own business: A bad credit score can limit the amount you’re able to borrow to start a new business, even if you have a solid business plan and data supporting your business success.