High interest rates illustration . [photo/www.rewardscreditcards.org
Most local borrowers are missing out on accessing loans at competitive rates because of not utilizing their positive credit history. According to a research by Ipsos Kenya, this is due to borrowers’ underutilization of reports issued by credit reference bureaus (CRB) to sanitize their credit history.
People with tainted credit rating are finding it hard to access loans from local lenders. But while that is the case, the blame lies with the borrowers who, the survey says, pay little attention to their loan repayment habits, thus affecting their ability to negotiate a lower interest rate.
A poor credit score can mean being charged higher interest rates, given a smaller credit limit or simply rejected outright. The Ipsos survey showed that although there is a good level of awareness among Kenyans on what a credit report is and the circumstances under which it is issued, few of them know they are entitled to a free report every year.
It further said a significant proportion of borrowers know what constitutes a positive or negative score, but fewer of the individual borrowers know that one can improve their score over time by ensuring they maintain a healthy credit history.
Lenders regularly review all of their customers and apply ‘rate-for-risk pricing policies.’ Essentially, this means that if you fall into a certain group based on your credit rating, and the lender decides that group is now a higher risk than previously, they are likely to raise the interest rate for all the people in that group.
Thus, even if you have been a good customer and always paid on time, your loan could suddenly become more expensive. By reviewing their credit scorecards, borrowers are able to make behavioral changes that will put them in good books with credit providers.
According to Ipsos, maintaining a healthy credit score is essential even if you are not looking to borrow any more money. On the other hand, Kenyans’ awareness of credit information sharing (CIS) remains low.