The Nigerian economy is fast-growing and for many, now is a time of opportunity. This growth is facilitated by affordable lending that allows Nigerians to improve their quality of life, buy homes and expand their businesses.
However, if you have bad credit, it can be frustrating trying to obtain finance at an affordable rate and some lenders refuse to lend altogether. We explore what causes bad credit and how Nigerians with bad credit can find affordable borrowing.
When you take a loan, the lender will conduct a credit check most of the time. This credit check will tell the lender how reliable you are with your financial agreements and whether you are likely to pay back the loan.
Of course, lenders want to avoid lending money to people who will miss payments or not pay the money back at all. To check you are likely to repay the loan a lender will conduct a credit check.
In short, your credit score reflects the risk you represent to a lender. If your credit score is fair or good, you will be considered a lower risk compared to someone with a bad credit score.
There are unique challenges Nigerians face when securing loans and as the banking system in Nigeria becomes more regulated, these problems can become exacerbated.
For example, it is possible to borrow money from unregulated companies in Nigeria even if you have a bad credit score. These companies will often not use any credit check and will apply a predatory (extremely high) interest rate.
Some of these companies are criminal in the way they try to collect money and you should try to borrow from regulated companies only even if you are desperate for money.
As regulation tightens across Nigeria, these companies’ days are numbered. While this is overwhelmingly positive, it can cause issues for Nigerians with bad credit who struggle to obtain credit elsewhere.
Compounding this issue is the unbanked population in Nigeria. According to the World Population Review, 56% of the entire adult population in Nigeria is unbanked. This means Nigerians may have limited or no access at all to banking products.
As a result, the majority of the adult population in Nigeria has no credit history whatsoever.
As banking practices improve and products and services become more available this unbanked figure will drop over time. In fact, the Nigerian government is making tremendous strides toward helping unbanked people access finance.
It is estimated that Nigerians will all have access to basic financial services in the near future.
If you have a bad credit score in Nigeria or no credit history at all there are ways to improve your financial standing and improve your credit score.
First and foremost, you should take pro-active steps toward accessing financial services such as opening a bank account. There are barriers to entry when trying to open a bank account, but providing you make an effort, it is not impossible.
You will need to:
Some financial institutions also stipulate you must have regular income and you may need to supply information about your job to a bank. This may be through documentation like wage slips or tax returns.
If you fail to open an account with a bank, there are now a whole host of banking apps designed to help unbanked people access financial services. Many of these banking apps are based in the EU, have extensive regulation and are reputable and safe.
Once you have access to a bank account, you will want to manage your finances responsibly. Ensuring you keep your account balances as high as possible and not using overdraft facilities.
You may find your credit history is still too low to generate a credit score or a credit reference agency marks you as a bad credit borrower.
There are now several microloan companies that operate across Nigeria including regulated and charitable organizations. These companies offer tiny amounts of borrowing that will improve your credit profile when you repay.
Microloans are a huge asset for those looking to build credit history without worrying about oppressive interest rates and high amounts of borrowing.
As mentioned above, there are too many companies acting in a criminal manner and loan sharking is common. Scams are also prevalent in the Nigerian borrowing sector – for example, some scam lenders will ask you to pay them money for them to lend to you and then disappear with your money.
The Nigerian government is working hard to change the image of the financial sector in Nigeria and eventually these companies will be a thing of the past. Police are making a determined effort to crack down on scammers in Nigeria.
As a borrower you should be ensuring you are managing your finances responsibly and protecting yourself from scams and bad lenders.
You can do this by:
Overall, while the financial landscape can be challenging, Nigerians have plenty of opportunity to thrive if they stay financially responsible.
Globally, bad credit problems can cause issues for people and there are many companies trying to help those with bad credit find finance that is affordable.
In the UK for example, there is now a Bad Credit Comparison website, BadCredit.co.uk, that allows bad credit borrowers to source borrowing from regulated companies.
Nigeria is on the cusp of implementing a fantastic financial system. The unbanked population is reducing rapidly, and regulation is increasing.
Before long, there will almost certainly be bad credit comparison services to assist Nigerians with bad credit find the best loan products.
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