Understanding Kenya’s evolving use of credit scores and what this means for consumers

With an evolving lending landscape that increasingly uses credit scores to better assess a consumer’s credit worthiness, it is important that customers understand what a credit score is and why the information is something they should check and review.

The Credit Reference Bureau (CRB) Regulations of 2020 are designed to help maintain a stable and efficient banking and financial system in the country. For consumers, these regulations create an environment where data from credit bureaus can be utilised to facilitate more accurate credit profiles, helping to create a more informed lending ecosystem that promotes greater financial inclusion.

CEO of TransUnion Kenya, Morris Maina, explains: “Fundamental to an evolving financial services industry is that information is shared with all the proper security and regulatory requirements in place. The secret behind this data, and the part that makes sense for Kenyans, is the creation of a comprehensive credit score from the information on your credit file. A credit score is a three-digit number that is calculated from a person’s credit history. It provides lenders with important insights to determine a person’s creditworthiness.”

The significance of a good credit score cannot be overstated. Think of a credit score as the foundation of a healthy financial lifestyle. You need a good credit score to successfully apply for a loan or credit card, or perhaps finance to buy a car or even a mortgage to buy a house. The better your credit score, the more likely you are to get approved and get good terms on your loan.

Developing a good credit score requires a few steps

You might think that if you do not borrow money, you should have a good credit score when you first apply for a loan. Unfortunately, this is not necessarily the case. No credit history can mean a ‘low’ or ‘no’ credit score as your level of risk is undetermined. No score simply means you have not been tested with credit and the provider will be unable to know if you will pay anything back if the loan is granted.

If you wish to improve your credit score, there are a few considerations to keep in mind:

1. Manage your accounts: Pay your accounts in full every month. Partial payments negatively impact your score.
2. Limit your amount of debt. A good rule of thumb is to keep the credit you use below 35 percent of your available limit.
3. Limit your enquiry activity. This simply means you shouldn’t make lots of applications for credit at the same or in a short period of time. Too many applications could send a red flag to lenders about your current financial situation and could imply financial distress.

What to do if you are struggling to pay your debts

All of this might be easier said than done, especially in these tough economic times. The most important piece of advice is for people not to ignore the problem. If you think you are going to struggle to pay, speak to your lender in advance. They might be able to help with a payment holiday or other support like restricting your monthly amount.

Equally, if you have missed a payment, do not ignore it. Have a discussion with your lender. Maybe they can help or change your repayment terms. It is also important to seek debt advice if you are having difficulties with meeting all your financial responsibilities.

How to access your credit report

At TransUnion, we have created the Nipashe platform that gives you accurate, up-to-date information about your credit status in real-time. Accessing Nipashe is as easy as downloading the app from Google Play Store or texting your name to 21272. You can quickly register using your ID number so TransUnion Kenya can verify that you are the person you say you are. This helps us keep your information safe as well as obtain the credit information from the credit bureau. You need to pay a one-off fee of Ksh50 to access these services.

Nipashe empowers you to not only see what lenders see when it comes to your credit profile, but it also gives you access to a clearance certificate. Kenyans are entitled to one free clearance certificate through Nipashe, in their lifetime. This document proves that your credit status is good, and that all your outstanding debts, if you have any, have been settled.

By integrating all relevant data, TransUnion Nipashe helps you stay informed on your credit score, shows you where you can improve, and gives you the knowledge you need to have a better understanding of your credit status. Beyond that, being able to access your clearance certificate means you can protect yourself against fraud by always having sight of your credit file and any enquiries made in your name.

If you think you have had a loan taken out fraudulently in your name, you must immediately speak to the lender where you think fraud has been committed, and inform the credit bureau.