How To Improve Your Credit Score So You Can Qualify For Housing Finance

When you apply for a housing loan, the first thing they will check is your credit score. If your credit score is good, your chances of getting the loan are dramatically improved. If your credit score is bad, you most likely won't get the loan.

So what is a credit score?

A credit score is a number that rates your creditworthiness. The higher the score, the better you look to potential lenders. It's usually a number between 300-900 and changes based on your activity with loans and credit issued to you.

The range of credit scores and what they mean can vary but here is an example below;

• Excellent: 800 to 850

• Very Good: 740 to 799

• Good: 670 to 739

• Fair: 580 to 669

• Poor: 300 to 579

Your goal should be to have nothing less than 670 as this will give you the ability to qualify for credit at better rates.

In today’s post, we will talk about your credit score and how you can improve it so you can qualify for housing finance.

Check your credit score

The first need you need to do is check your credit score. There are multiple ways to go about this;

• Check using the USSD code 5658#. Make sure you use the same phone number linked to your NIN.

• You can also create an account at CRCC in order to order a credit report. You get a free report once a month.

Once your report is generated, you need to look at all the details carefully to ensure it’s the correct report. Look at all the identifiers, like your name, email, BVN etc. You need to also check the transactions on the report to ensure they match your own activities.

If there’s any discrepancy, you can dispute it.

If your score falls from 740 and above, you are ready to apply for your loan, however, if your score is below 740, follow the next step

Reduce your debt

Your outstanding debt has a huge impact on your credit score. Potential lenders use this to determine how much more debt you can carry. They can also use this information to know if you have a habit of owing for long periods of time.

So your first step should be to pay off as much of your debt as you can. Starting with the oldest and the largest.

The goal here is to reduce your outstanding balances as much as possible as this will have an immediate effect on your credit score, helping to increase the score by a few percentage points

Here are a couple of steps you can take to reduce your debt;

1. Get a side hustle specifically dedicated to paying off your debt

2. Restructure the debt with your creditors. i.e reach out to them about changing some of the terms of the debt in a way that would make it easier for you to make your payments.

3. Do not take on any new loans for a while. You do not want to complicate matters while you are still trying to solve the problem at hand.

*Hint: Every creditor is open to restructuring debt when you have challenges meeting up with payments.

Make payments on time

Your payment history is the most important factor in determining your credit score. Your payment history includes how soon and how often you pay off your debts and bills.

So you must make the effort to regularly pay all your bills and any debts you might have on your accounts including overdrafts and credit cards if you have any.

What you are trying to establish here is a clear and predictable pattern of paying off your debts as and when due.

Keep your credit utilization under 50%

Credit utilization rate is the percentage of credit you are currently using divided by the total credit you have available to you. For example, if you have a total of N200,000 available to you from 3 providers and you have used N100,000 it means your credit utilization is 50% i.e you have used just half of the credit available to you.

Your credit utilization rate amounts to about 30% of your total credit score which makes it a very important factor in determining your credit score.

A low credit utilization rate shows you are using less of the credit available to you which suggests that you are doing a good job managing your spending and expenses. On the other hand, a high credit utilization rate (above 50%) indicates the opposite and will lead to a lower credit score.

Apply for small credit you can pay off quickly

This might sound like a contradiction to the previous step but just stay with me for a minute.

One of the best ways to boost your credit score is to demonstrate that you are responsible with your credit. And what better way to show this than by taking credit and paying it back on schedule?

New credit inquiries make up 10% of your credit score while payment history makes up 35% of your score.

So if you want to boost your credit repair or improvement efforts, one way to go about this is to take short-term loans and pay them back as soon as you can. The lender is obligated to report this to the credit bureaus so it helps to boost your credit scores. Only do this if you are 100% certain that you can pay back these debts within the stipulated period or a maximum time frame of 30 days or you might end up ruining your credit score even more.

If you follow the steps above carefully, you will be that much closer to qualifying for housing finance.