Why You Need a Good Credit Record
Paying back on schedule, when you borrow, may be a challenging thing to keep up with, but that's still your best option. An untidy credit history is like setting land-mines for yourself. If it doesn't harm you immediately, chances are high that you will get hurt down the line. The reason is that, while staying out of borrowing may be a prudent way to operate, it's hardly easy to totally avoid borrowing. Besides, good financial management encourages a level of financial leverage - using your financial capacity to attract more funding and consequently expanding the scope of your operation.
A History of Bad Credit Performance
Very often, business owners, particularly those in the MSME sector, attack banks for their weak support to the productive sector, especially the MSMEs. No doubt, our banks can do a lot more to support and nurture small business. That, too, is in their long-term self-interest, as these budding businesses can easily grow into big ones that can generate more earnings for banks. However, it must be acknowledged that banks have a poor repayment history to content with in Nigeria. The judicial process has not helped so much, given its bottlenecks and slow speed. Often, lenders and those who advance trade credit (it goes beyond banks) suffer in silence and absorb losses. That's limiting for the economy since it compels parties to withhold action, subsequently.
Credit Bureau May Discredit You
Banking on the seemingly accommodating judicial system to want to escape repaying money borrowed from banks or other institutions and individuals, or trade credit granted by a seller, is likely to begin to fail, given the emergence of credit bureau. Indications are that more institutions are feeding the existing bureau with credit information on their customers, meaning that your credit history may now be readily available. While the bureau does not compel you to repay, it makes information available to prospective lenders who may literally blacklist you for poor credit record. What you may not realize, too, is that when things begin to run effectively, a prospective landlord, business partner, utility company, service provider, employer, insurer, lender or any party you stand to deal with may seek credit information on you from the bureau, to determine if you are worth a relationship. So, if you build a poor track record for yourself, you'll never know when that will pop up to haunt you.
Resolve To Stay Clean
Don't fall for the temptation to see borrowed money as a free gift or the oft spoken about national cake. You know it's not. You know too that you deny others an opportunity when you don't repay what you borrow. Even when it gets tempting to renege, resolve to stay responsible. And now, there is the credit record to think about. When you fail to pay and that builds into your credit history, the following happens:
- Your credit rating falls and every lender can access that information from the bureau, meaning that you may not get that important credit next time. Problem is, that could be a critical need when it arises.
- Even when your case is not as bad as to deny you (or your business) access to credit, you poor credit rating means that any lending to you should be at a cost that matches the higher risk. Simply put, the interest rate should be higher than for a better quality credit.
- Besides, while a business or individual with a very solid credit standing may get away with a weaker demand for security, one with a not-so-sterling profile may face the onerous demand for a high-value collateral. When you have a real need for funding, say, for an important and urgent business transaction, letting a weak credit record prove a stumbling block is the last thing you need.
Your best bet, then, is to stay clean. Pay when you should and leave a good track record for tomorrow.
Other Key Factors
Beyond non-repayment or late ones, a few other factors may not tell well on your credit standing. Multiplicity of borrowings, for instance, especially, if, put together,you seem over-borrowed. Business or personal information manipulations will also not reflect well. You need to be seen to be credible to keep a good rating.
Brushing Up Your Record
If you already have some cobwebs to worry about, it still pays to try and straighten things up. Trust a banker or other lender to be ready to discuss a solution and get things restructured.
More importantly, begin to take your credit standing as something serious and, really, an asset. With credit bureau getting off the ground, your credit history can be captured and made accessible to parties that can otherwise make a positive impact on your life. A poor rating may discourage them and cost you an opportunity.
