Everything You Need to Know About Creditworthiness

Written by Taofeeq Alabi

Many businesses fall short of accessing loans due to their credit score and credit history. A credit score is a dependent criterion for securing loans.

What is a credit score?

A credit score is the grading device of the lending system. It’s a risk assessment tool that measures the risk potential of your business to the lender if they offer you a loan.

In Nigeria, there are several credit score models available to businesses. It provides lenders with the use of data and methodological approaches to evaluate your creditworthiness. Here are 4 common credit score models you should know:

  1. Credit-Bureau Based Scoring: These organizations are responsible for the collation, storing and maintaining credit information of businesses. Credit bureaus allocate credit scores to businesses based on their past loan activity, repayment and outstanding debts. 
  1. Collateral-Based Scoring: This is more endemic to the traditional banking sector. They often require collateral such as vehicles, equipment, etc. They determine the loan amount and terms based on the quality of the collateral. 
  1. Cash Flow-Based Scoring: For SMEs in Nigeria, this form of credit scoring is the most convenient. It assesses an applicant’s revenue and expenses to evaluate their ability to secure a loan. It requires vital documents like bank statements, tax records,  and other financial statements.
  1. Alternative Data Scoring: This method utilizes unconventional data sources to gauge an applicant’s ability to secure a loan. Documents like utility payments, mobile phone usage, and social media activity to measure creditworthiness. 

To further understand how credit scores work and how you can utilize them, we’ll be sharing 5 facts you need to know about credit scores

  • A Credit Score is not a Credit Report: A credit report is a detailed documentation of a business’s credit history and other personal information ranging from but not limited to past loans, personal information, and payback history. A credit score on the other hand is a numerical representation of a credit report that determines your creditworthiness. 
  • A Credit Score is Volatile: A credit score is not static or permanent. It changes frequently based on your credit report and how often it gets updated. Your credit management habits determine the rise and fall of your credit score. Demonstrating good creditworthiness by paying back loans on time increases your credit score. Note that you have to take loans for your credit score to increase. 
  • Paying Back Loans isn’t Dependent on your Credit Score: It’s a widespread notion that paying back loans on time instantly increases your chances of a higher credit score. However, it takes time for the Nigerian Credit Bureau to update your report. Some loans may reflect pending until they get updated. Hence, the importance of avoiding a bad credit score.
  • Increased Efficiency: Conventional credit assessment can be cumbersome. Credit scores allow lenders to easily evaluate your loan history and make streamlined decisions by saving operational costs. 
  • Reduced Risk: Lenders are at the receiving end of incurring financial risks. The introduction of credit scores provides a data-driven overview for lenders to evaluate a business’s financial ability to repay loans. This reduces the burden of risks on the lender. 

As a business, securing loans is a critical tool to leverage for strategic growth and capital development. However, you need to maintain a good credit score to showcase the creditworthiness and credibility of your financial record. 

A good credit score is pertinent to accessing higher loans for your business. In essence, start by paying back small loans on time to build an attractive credit score.

For a better understanding of credit scores and how it affects your loan management, please contact your account manager. For further assistance, contact our support team at help@getprospa.com or call us at 018890240.

Your business growth is invaluable to us.


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