How To Build A Good Credit Score

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Many Kenyans have dug themselves into a financial crisis by borrowing to finance their lifestyle. While the convenience and ease of access to cash through mobile loan apps has caused Kenyans to get stuck a vicious debt cycle, the consequences are dire. Failing to payback will have you blacklisted by Central Bank of Kenya and your name forwarded to the Credit Reference Bureaus (CRB). This leads to a minimum of 5-year and a maximum of 7-year restriction from borrowing.

Can you imagine that?

It can really set you back for YEARS.

It is important to note that lenders use your credit score to creditworthiness i.e. the likelihood of you paying back. With this score, they can determine how much of a risk you are and the higher you credit score, the better your chances are of getting a loan at the best rates in the market.

Therefore, If you belong to this club of brave Kenyans who fail to make payment on time and haven’t been blacklisted yet, and would like to have a good credit score to borrow much larger sums cheaper in the future, then continue reading.

What Goes Into Calculating Your Credit Score

A credit score is a constitution of five key pieces of information – payment history, level of debt held, credit age, the mix of credit held and recent borrowing patterns. Knowing this will make it easier for you to maintain a good score.

Build Your Credit Score With Good Financial Habits

It takes time to build a good credit score and this means making payments on time and keeping your credit low.

To do this, put into practice the following habits to show your creditworthiness to financial institutions:

1 – Make 100% loan repayments on time. This also includes bill payments such as electricity, water etc., should also be paid on time. Unpaid bills can end up in your report as they can be sold to debt collectors and this will seriously affect your creditworthiness.

2 – Maintain a low credit utilization i.e. use less of what you are allowed to borrow on your credit card. Also, make full payments every month and should you extend to the next month, don’t let your balance be more than 30% of your credit limit. Thus, maintaining a low balance translates to a good score in the long run.

3 – Borrow less often and reduce the number of sources. Don’t be one of those people who owe everybody money. Having a wide array of debt portfolio can have a negative impact on your credit score, aside from forgetting you owe here and there. Remember the lower your debt, the easier it is to manage it.

4 – Hold accounts for as long as possible. Try to keep all your accounts running for the sake of having a good payment history and credit utilization. This will serve as a great point of reference when you intend to borrow more.

5 – Avoid opening new accounts as this reduces the average account age which makes up a part of our creditworthiness.

6 – Finally, check your credit reports at least once a year for errors or discrepancies. The sooner you identify any problems, the faster you can correct and maintain a good score.

How to Check Your Credit Score

It is important to get a credit report at least once year. This way you can estimate how you’ll handle your future borrowing and also monitor if your efforts are paying off.

There are several organizations offering credit information in Kenya, namely, Metropol, TransUnion and CreditInfo.

What’s Next?

Pay on time and borrow less often.

Financial success is as a result of various factors and debt management is at the heart of it. Maintaining a good credit score opens up numerous opportunities for your financial life. Having that option ready for you is the true definition of financial freedom.

Image: Top by Raw Pixel via Pexels.

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Disclaimer: The information contained in our website, blog, guest blogs, e-mails, videos, programs, services and/or products is for educational and informational purposes only, and is made available to you as self-help tools for your own use.

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Irene Makanga
Irene has an MBA in Finance and is an avid businesswoman, passionate about financial literacy.

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