What are Credit Checks and why are they Important?

What are Credit Checks and why are they Important?

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What are Credit Checks

Credit check is the act of checking one’s credit score and general credit history. Credit score is a numerical expression based on a label analysis of a person’s credit files to represent the creditworthiness of an individual. A credit score is primarily based on a credit report information typically sourced from credit bureaus.

Lenders such as banks and private institutions like Creditville Limited use credit scores to evaluate the potential risk posed by lending money to consumers and to mitigate losses due to bad debt. Lenders use credit scores to determine who qualifies for a loan and how much they qualify for. They also use credit scores to determine which customers are likely to bring in the most revenue.

Good credit plays an important role in your financial life. Not only is it essential for obvious things like qualifying for a loan but also for less obvious things like getting cellular telephone service, renting a car, and perhaps even getting a job.

Generally, bankers do not like their cheque bouncing because it raises an issue of integrity with their employers.

I once heard a banker say He could never allow His cheque bounce because He would be called in for questioning by Human resources the next day.

Financial institutions like Creditville Limited upload reports of loan customers at the end of their loan cycles. This is how credit bureaus are able to get their data for credit checks.

How Important is a Good Credit Score?

Credit scores don’t usually get the attention they deserve and we don’t realize how important they are until we go to get a loan and realize we’ve somehow ruined it. Because credit scores are one of the only ways for lenders to assess a borrower’s risk and can mean the difference between not just qualifying for the loan, but also paying hundreds to thousands more in interest, it’s important that you diligently work on keeping a clean credit file.

The most crucial role that credit ratings play in finances is in the interest rate. If you have a poor or bad credit rating, you are going to pay a much higher interest rate than someone with an excellent rating, if you are approved at all. When it comes to settling down and buying a house, your credit score can become one of the most important numbers in the process.

A good credit rating can help in other situations including:

  1. Employment: Not all employers require credit checks, but if you are in finance or a position requiring that you handle the company’s money, bad credit can end up hurting your chances of landing a new job. The idea behind checking credit for certain positions is that if you can’t manage your own finances, you may have difficulty managing other people’s money as well.
  2. Qualifying for a Loan: To qualify for a loan, your bank or financial institution will do a credit check to ascertain if you have good or negative credit score. If you have bad credit, most likely you will not be given a loan so it is important to keep your credit ratings/credit score high.
  3. Credit cards-Before banks check your eligibility criteria for income and other factors, they check for your credit score. The banks require the individual to have a credit score a minimum in order to be eligible for the credit card. The bank will reject the application right away if the applicant has a poor credit score. Credit cards are not a common issuance and only high profile customers who earn a lot are eligible.
  4. Higher limits– A good credit score will not only get you a lower rate of interest on your loans but it will also help you in getting a higher loan amount with your loans and higher credit limit on your credit card. A bad credit score, on the other hand, will result in lower credit limit.
  5. Lower Insurance Rates. Bad credit can cost you in other areas besides higher interest rates on loans and credit cards. It can also affect your insurance rates and cost you hundreds more than if you had a better credit score. Although insurance companies in Nigeria do not use credit checks at the moment, there is prospect for future use soonest.
  6. Qualifying for Mortgage. If you have poor credit, it isn’t just difficult to qualify for home mortgages. You may also be denied rental opportunities simply because your credit file shows that you may be at risk of not paying your mortgage.
  7. For the future– Even if you don’t see yourself applying for loans or credit cards in the near future, ensure that you still maintain a good credit score or credit history. A good credit score will come in handy when you apply for home loans/credit cards or other kind of loans in the future. Having no credit score or credit history is just as worse as having a poor credit history or poor credit score.

What does Creditville Limited Check?

When customers come to secure a loan, it is common practice for Creditville Limited to do a credit check on the customer.

Things Creditville Limited checks include:

  1. Defaults on loans
  2. Returned cheques
  3. General performance in previous loans
  4. Existing loans with other banks or financial institutions.

 


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