If I am listed in the Credit Reference Bureau, will I ever qualify for a loan in future? What can I do to attain and maintain and build a positive credit reputation?These two questions have lingered in the mind of any borrower at some point in time and in this week’s blog piece, we attempt to share some advice on building and maintaining that esteemed and attractive credit profile. But first, it is important to know that as per the Credit Reference Bureau Regulations 2013, commercial and microfinance banks are mandated to share information on both their good and bad borrowers.
The intention of the mechanism is to enable lenders have a full picture of potential and current borrowers thus enabling the lending institutions to make informed decisions. As such, borrowers with a good repayment track-record may get negotiate for better credit terms. On the other hand, lenders may treat those with a poor repayment record with more caution and therefore give loans under more stringent terms.
This information is shared through licensed credit reference bureaus and is used by lenders (through customer consent) in reviewing loan applications as well as monitoring a borrower’s loan performance during the life of the loan.
Below are some easy tips, split into two categories: when applying for a loan and during the life of a loan.
Applying for a new loan
- Only get credit when you need, and you have the ability to repay
When deciding whether to borrow money, the most important thing is to make sure you can afford to make all of the repayments over time. You may need to allow for interest rate rises and anything else that might affect your income and expenses in the future (for example, starting a family or retiring from employment). Avoid borrowing to spend on luxury items, as well borrowing to pay off another debt.
- Ensure your contact information is accurate
When making a loan application, ensure that the contact information you share with your lender is accurate. Also, make a point of updating your contact details with your credit providers as soon as you change them in the life of the loan. It is also important to provide multiple contacts e.g cell phone number, postal address and email to ensure your credit provider can reach you to issue listing notices, as required under the new CRB Regulations 2013.
- Avoid making multiple loan applications at the same time
While shopping around for a loan facility, do not commit to multiple lenders concurrently unless you are sure about the terms (and you can comfortably repay). This is because your credit report indicates the number of inquiries lenders have made on your profile in the last one month. A high number of inquiries could mean you are making multiple loan applications at the same time and this may affect your ability to repay. Instead, as you enquire from various lenders on their cost of credit, it is advisable to gather the information first, then visit the Total Cost of Credit website to compare the various rates before committing to sign the loan application form.
- Obtain all necessary documents if a 3rd party is repaying on your behalf
Finally, in cases where the loan will be repaid on your behalf by a third party e.g employer, ensure you obtain all the necessary certified documents showing the 3rd party’s commitment to repay on your behalf in good time and submit with the loan application documents. Remember, it is your responsibility to ensure the instalments are remitted in time and at the agreed amount.
- Use loan for the intended purpose
This is a paramount strategy to ensure you build and maintain a favourable credit profile. Using the loan for other reasons other than why you took the loan in the first place has a high bearing on your ability to repay the loan in good time and as per the agreed instalment. For instance, an individual who takes a loan to pay school fees but instead goes for holiday with his/her family in the coast is likely to default/delay in repaying after the vacation since he will have to sort the school fees issue first from his income, before repaying the loan.
- Always ensure you make your repayments promptly and consistently
Prioritize loan repayments before spending your income on other expenses by working out a budget that factors in the repayment. To ensure timely repayments, you can take advantage of technology by setting up payment reminders on your phone, email etc. to
- Check your credit report routinely
This ensures you can quickly spot and fix any errors (either personal or credit-specific details), so they don’t adversely affect your credit scores and subsequent credit application. Borrowers are entitled to one free credit report annually from the bureaus. Additional reports can be obtained at a minimal fee. The two licensed bureaus are Metropol CRB and Transunion Africa CRB.
- Speak up if you are having money problems
If you are having trouble repaying your debt, or think you may get into financial difficulties, contact your credit provider as soon as possible as they can often help you – for example, by changing your repayment schedule. You can also speak to a personal finance coach to learn better ways of managing your finances.