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How to Improve Your Credit Score in Nigeria
How to Improve Your Credit Score in Nigeria
Having a good credit score is important for anyone looking to access financial products like loans, credit cards, and mortgages. In Nigeria, as more financial institutions adopt credit reporting, maintaining a good credit score has become a priority for many. Whether you’re trying to boost your score or just beginning your credit journey, there are steps you can take to build and maintain a solid credit profile.
Credit Scores in Nigeria
A credit score is a numerical representation of your creditworthiness based on your borrowing history and repayment behavior. In Nigeria, credit scores typically range from 300 to 850, with higher scores indicating lower risk to lenders. Credit bureaus, such as the Credit Bureau Association of Nigeria (CBAN), collect data from financial institutions and other credit providers to generate your score.
Several factors influence your credit score, including payment history, amounts owed, length of credit history, new credit inquiries, and the types of credit you use. Understanding these factors is the first step in improving your score.
Steps to Improve Your Credit Score
1. Pay Your Bills on Time
One of the biggest factors that impact your credit score is your payment history. Lenders want to see a history of on-time payments, as this shows you’re likely to repay borrowed money. If you consistently make late payments or miss deadlines, it will reflect poorly on your score.
To improve your payment habits, set reminders for due dates or use automatic payments. Consistency is important, so even if you’ve missed payments in the past, start paying your bills on time moving forward. Over time, your timely payments will positively affect your score.
2. Reduce Outstanding Debts
Another major factor in your credit score is the amount of money you owe compared to your credit limit. This is called the credit utilization ratio. A high ratio may signal to lenders that you rely too heavily on credit. Reducing your outstanding debt will lower your utilization ratio and boost your score.
You can start by paying down credit card balances and other forms of revolving debt. If possible, avoid maxing out your credit cards. Even if you pay off your balance in full each month, high utilization during the billing cycle can negatively impact your score. Aim to keep your credit utilization below 30% of your available credit limit.
3. Monitor Your Credit Report Regularly
Monitoring your credit report allows you to spot any discrepancies or errors that could negatively impact your score. In Nigeria, you are entitled to one free credit report annually from credit bureaus like CRC Credit Bureau and XDS Credit Bureau. Regularly checking your report can help you stay informed about your credit profile.
If you notice any inaccuracies, such as payments wrongly reported as late or unfamiliar credit inquiries, dispute them immediately. Correcting these mistakes can help improve your score. It’s also wise to be vigilant about signs of identity theft, as fraudulent accounts opened in your name can harm your credit.
4. Limit New Credit Applications
Each time you apply for new credit, lenders perform what’s known as a “hard inquiry” on your credit report. Multiple hard inquiries within a short period can signal to lenders that you are in financial trouble and need credit urgently. This can have a negative impact on your score.
To improve your score, avoid applying for new credit unless absolutely necessary. If you’re planning to apply for a loan or credit card, research your options and apply only for the ones you are most likely to qualify for. Spread out your credit applications over time to minimize the effect on your score.
5. Maintain a Healthy Credit Mix
Lenders look favorably on individuals who can manage different types of credit, such as credit cards, personal loans, and mortgages. Having a mix of credit accounts demonstrates that you can handle various types of financial obligations. However, don’t open new accounts just for the sake of improving your mix. Only take on credit that you need and can manage responsibly.
If you currently have a limited credit history, consider adding new types of credit gradually. For example, if you only have a credit card, you might look into a personal loan or retail financing for large purchases.
6. Keep Old Accounts Open
The length of your credit history is another factor that affects your score. Keeping older accounts open can benefit your score by extending your credit history. Even if you no longer use an account regularly, closing it could shorten your credit history and negatively impact your score.
Additionally, keeping older accounts open increases your total available credit, which can help lower your credit utilization ratio. If you have an old credit card that you rarely use, consider keeping it active by making small purchases and paying them off in full each month.
ALSO READ: Best Savings Accounts for Students in Nigeria
7. Settle Delinquent Accounts
If you have any overdue debts or accounts in collections, it’s important to address them as soon as possible. Unpaid debts can severely impact your credit score and may even result in legal action. Settling these accounts, whether through repayment or negotiation with the creditor, can help restore your creditworthiness over time.
While paying off delinquent accounts won’t immediately erase the negative marks from your credit report, it will prevent further damage and show future lenders that you are working to improve your financial situation.
8. Be Cautious with Joint Credit Accounts
Joint credit accounts, such as shared loans or credit cards, can affect your credit score even if you are not the primary account holder. If the other person defaults on payments, it will negatively impact your credit as well. Therefore, it’s important to be cautious when entering into joint credit agreements.
Make sure you trust the other party to make payments on time and manage the account responsibly. If possible, regularly monitor the account to ensure payments are being made as agreed.
9. Use Credit Wisely
Being responsible with credit is key to improving your score. Only borrow what you need and can afford to repay. Avoid unnecessary purchases on credit, and always have a repayment plan in place before taking on new debt. By using credit wisely, you can build a positive credit history and improve your score over time.
Additionally, if you’re using a credit card, try to pay off the full balance each month. This not only helps you avoid high-interest charges but also demonstrates good credit management to lenders.
10. Consider Secured Credit Cards
If you have a low credit score or no credit history, a secured credit card can help you build or rebuild your credit. Unlike traditional credit cards, secured cards require a cash deposit that serves as collateral. This reduces the risk for lenders and makes it easier to get approved.
Using a secured credit card responsibly—by making timely payments and keeping your balance low—can help you improve your credit score. Over time, as your score improves, you may qualify for a traditional credit card or loan.
ALSO READ: Requirements for Getting a Mortgage Loan in Nigeria
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