3 friends Ann, James, and Anthony are looking to take up loans to finance their aspirations in 2024. Ann who just completed her Education loan wants to invest in a mortgage plan, James wants to start a business while Anthony who is a businessman wants to stock up his business. The three friends visit a financial institution for financing.
Ann who consistently paid her Education loan gets approval with a low interest rate while Anthony who gets the same financing as Ann gets a high interest rate. On the other hand, James is asked to build his score for a few months before applying for financing.
Although fictional, the three friends represent common scenarios that happen when applying for loan facilitation. Loan qualifications are often determined by one’s credit score and understanding its influence on your overall financial well-being is key to achieving your financial goals.
So what is a credit score and why is it important?
According to Creditinfo Kenya, Credit score, customer rating, or Creditinfo Predictor provides a single assessment of the customer’s risk profile, presented by a number from 250 to 900 which is accompanied by a grade ranging from A to E. The higher the score the lower the risk meaning that a credit of 250 is a bad score which is considered a high risk while a higher score has better ratings. A credit score is what financial institutions use to determine the types and amounts of loans you qualify for.
Other than the borrowing power you have with a good credit score, did you know that a good score also determines the interest rate you will pay on any loan? Just like Ann and Anthony who both went for the same facility but got different loan rates, with a good credit score you can get a low repayment rate meaning you save more than someone with a low credit score. And with today’s economy, a lower interest rate means you get to sp your hard-earned money on other things.
Ever gone for an interview that you were confident you qualified for, only for you to fail at the very last stage? Depending on the role you are applying for companies today will go a step further and check your credit score to determine your risk levels, more so if applying for a role with financial responsibilities.
Investing in your credit score is crucial for your future financial health. By actively managing your credit, you can unlock better opportunities, save money, and achieve your financial goals more easily in 2024 and beyond. And how do you build a strong credit score?
- Regularly monitor your credit scores for any errors or discrepancies, thereby enabling you to resolve them immediately.
- If servicing a loan, ensure you make timely payments because late payments have a direct effect on your credit score
- If you have a credit card, use it wisely to achieve your goals and not set you up in a debt
Keep in mind that building a good credit score needs commitment and consistency, don’t be discouraged if it is not where you would like it to be.