Defaulting on easy micro-loans harms credit scores

Kehinde heaved a sigh of relief, she had just paid off a micro loan of N30, 000 spread over a three month payment period at over 20 percent interest rate per month with Carbon (formerly Paylater), a Fintech Company.

Seven days afterwards, she got this message from KwiMoney, another Fintech Company “You’ve been selected for an instant loan! Visit get.kwicash.ng for KwiCash and borrow from N1k to N100k. Your loans grow with good payment.”

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This got Kehinde thinking. She has great payment history with Carbon. In fact, she makes it a point to pay off her micro loans before it is due and at some point last year her micro-loan with Carbon came at 12.50 percent per month a difference of 7.50 basis points from what she paid on the last loan she took. So, the interest rate charged on her loans is falling because of her payment history.

This is not the story of her colleague Linda. Linda took her first micro-loan with Branch International, a fintech company. However, she defaulted on her payment by over seven days. The company persuaded her to meet her financial obligation, she eventually did.

Before she paid off the micro-loan, she attempted to take another with Carbon but she was told she did not qualify. She was very surprised how this could be. In addition, Branch International downgraded her status by reducing the range of micro-loan she can access.

With the advent of bank verification number, credit scores and history will become easier to track and this will have significant implication for personal finance.

A credit score, also known as a credit rating, is a number that reflects the likelihood of an individual paying credit back. Lenders like banks and credit card companies will look at your credit file when they calculate your credit score, which will show them the level of risk in lending to you.