In these hard times, the need for one form of credit or the other keeps increasing. People now depend on extra cash flow (credits or loans) to solve their financial needs. Lenders encounter many borrowers of personal loans to meet their personal needs or business loans to expand their businesses. This is because credits or loans may be the last option many borrowers can’t do without. However, credit bureaus in Ghana have roles to play in determining which borrower gets a loan or not. The meaning of a credit bureau, how they work, what a credit report means, etc is all-inclusive in this article.
What is a credit bureau?
A credit bureau is a company that collects information relating to the credit ratings of individuals. Then they make this information available to banks and other financial institutions. Besides that, a credit bureau also functions as a database of information. They use the information they collect to create a credit score for each individual. And they also sell the information they gather to lenders and others who want to know about your creditworthiness.
Case study
Lenders will always want to know the creditworthiness of every credit application. This helps them know your chances of repaying the loan they would give you.
For example, for any borrower who applies for a loan in Ghana. Be it a student loan, guarantor loan, travel loan, etc. That bank will want to get that borrower’s credit score before approving the loan. Because of this, that bank will request a credit history of that borrower from a credible credit bureau in Ghana. Thereafter, if the borrower’s credit history is positive, and they are okay with the credit score. The bank can now give the loan to the borrower.
Note: The information they get from the credit bureau helps borrowers decide whether to lend money to a borrower.
How do credit bureaus do their job?
Credit bureaus have ways they do their jobs. The way they approach information about individuals differs across credit bureaus. This is significant in how credit scores of individuals usually vary across various credit bureaus. Some credit bureaus may only use the information in your credit report. While some others can go the extra mile to use all your financial behavior information, they can get.
Credit bureaus typically calculate your credit score based on your financial behavior, which could be positive or negative. When you keep making timely payments and according to your repayment terms. You will most likely have a positive (good) credit score. But failure to make timely repayment and default on your repayment terms, you’ll have a negative (bad)credit score.
Note: A positive credit score most times gets you a better interest rate and terms than someone with a negative credit score.
What is a credit report?
A credit report is the raw data of individuals’ financial behavior before credit bureaus use it to create credit scores. The financial behavior of individuals includes their credit history, timely or untimely repayments, defaults in terms of agreement, etc.
Note: You can only consider the credit report of individuals as valid if it comes from a registered credit bureau.
What are the credit bureaus in Ghana?
- Dun & Bradstreet Credit Bureau Ltd.
- HudsonPrice Data Solutions Limited
- XDSData Ghana Limited
They all operate in Ghana with a license from the Bank of Ghana. They may issue different scores for an individual, even though they judge the scores on the same credit report information.
What is the information the credit bureaus work with?
You could want to know how the credit bureaus gather the information they work with. This information equips them with enough details they need to rate your credit score.
The following is the information credit bureaus work with:
- Your personal information
- Trade lines
- Inquiries
- Public records.
What are the factors credit bureaus use to calculate my credit score?
There are factors credit bureaus use to determine your credit score. These factors help them place you where you belong in their score table.
The following are the factors credit bureaus use to calculate your credit score:
- Your credit payment history
- The current debts you have
- Time length of your credit history
- The credit type mix
- Frequency of applications you make for new credit.
Conclusion
Credit bureaus in Ghana work hand in hand with lenders to serve borrowers. This is because, without the credit bureaus, lenders could give loans to bankrupt borrowers. And without the lenders and the information of lenders, they send to credit bureaus. The credit bureaus may not have enough updated information on borrowers they can send to lenders upon request.
However, borrowers must ensure they keep excellent credit scores from time to time. This is because there are times of emergencies when quick loans will be really important. And a bad credit score will always disqualify them for any type of loan.