When you apply for a bank loan, it is almost inevitable that your lender will rely on your credit score to gauge how credit-worthy you are. If you have a poor credit score, chances are that you might either be denied a loan, or get a loan at a very exorbitant rate. At the same time, if you have been listed on the Credit Reference Bureau, you will be automatically considered high risk and ineligible for a loan.
This is very common when you are applying for personal unsecured loans. These are the loans borrowed on the premise that the borrower will repay from their salary or income from their small business. In an economy where very few people have the ability to pay cash for a home, a car, education or even fund business capital in cash, you might still want to go for a loan. So what can you do when your debt gets out of control, when you are faced with adverse listings on your credit report, or when your credit report has a low score?
What causes poor scores and listings?
According to Morris Maina, the chief executive officer of listing firm TransUnion Kenya, the die is not cast, even though negative listing could affect your chances in the short term. Maina explains that adverse credit listings are a result of poor repayment history on one or more loans or credit cards. This may range from late, missed or even partial payment. “These listings will be reflected in your credit report, and will lower your credit score and potentially make it more difficult to get a loan or credit card,” he says.
If you previously took money with a mobile line and then tossed it away and took a different line, your name will still be attached to the credit you defaulted whether or not the number you used was reassigned to another user. To get cleared, you will need to repay and get clearance.
How is default recorded?
You will not immediately be listed on CRB or recorded for poor credit listing if you default for one month. According to Maina, your default will be recorded on your credit report if you miss payment for three consecutive months. “The default history will stay on your credit report for five years. It will only be removed after full repayment and after this time has elapsed,” he says.
However, you will not be listed for default without being notified first. The Credit Reference Bureau Regulations, 2020, require that defaulters get a 30-day notice before their names are forwarded to CRB. From September this year, too, the Central Bank of Kenya (Digital Credit Providers) Regulations will bar digital lenders from submitting the names of defaulters for listing without their knowledge.
This will coincide with the end of a CRB listing suspension for loans below Sh5 million that was executed by the CBK in October 2021. Currently, there are about 4.6 million accounts that are listed with the CRB. Out of these, an estimated 99 per cent have loans of Sh5 million and below.
Do you know your credit status?
Have you ever applied for a credit report? You are entitled to one free credit report every year. There are three main credit reference bureaus in Kenya which can give you a credit report. These include:
· Metropol Credit Reference Bureau: Points will be between 200 and 900. Points below 400 will mean that your rating is poor. Points between 800 and 900 will mean that you have a credit high rating. You can access CRB services from Metropol through Metropol website, Metropol crystobol app or by dialling *433#.
· Transunion Credit Reference Bureau: You can access the TransUnion CRB services via SMS number 21272. You can also download TransUnion’s Nipashe app to your Android smartphone via the Google Play Store to access your credit report.
· Credit Info Credit Reference Bureau: You can access the Credit Infor CRB services by going to their primary website creditinfo.co.ke where you can get your report or clearance certificate.
Maina explains that when you go for a credit report, the report you get will reflect your payment behaviour overtime. “It will also include information from sources like banks, micro finance institutions, Sacco’s and traders,” he says. If you settle your default, Maina says that your default status will change from non-performing to performing, but with a default history. “This default information is removed five years after full repayment of the facility you defaulted on,” he says.
Boosting your credit score
According to Maina, the first step is in proper management of your accounts. If you have accounts, whether on mobile or bank which have loans, you must ensure that you are making repayments in agreement with your lender. It is important to ensure that you don’t go into the habit of making partial payments. “Partial repayments will negatively impact your score and leave you playing catch-up with growing outstanding debt,” says Maina. He recommends that you should limit the amount of debt you take no matter how eligible you are. “Endeavour to keep the utilisation of your current facilities below 35 per cent of your limit,” he says.
Your credit worthiness will not improve if you don’t grow your credit history. “Long-standing credit accounts that are consistently settled in full reflect positively on your repayment reliability,” says Maina. He adds that it also helps to maintain a healthy mix of secured credit (home loans and vehicle finance) and unsecured credit (personal loans and credit cards). “Limit your inquiries. Don’t shop around for too much credit at the same time. Too many applications in a short span of time could raise red flags to lenders about your current financial situation,” he says.
Most defaulted loans in Kenya
According to data from the Central Bank of Kenya (CBK):
· Real estate developers and mortgage takers have defaults of Sh74.7billion.
· Kenyans in the transport sector have defaults of Sh42.2 billion.
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