Is Credit Really King? A West African’s View!

Cut Your Coat According To Your Cloth

I grew up in a culture that solely approved living within your means and spending money you have in hand or your bank account. Loans/credit lines from my bird’s eye view were purely meant for entrepreneurs and businesses looking to expand their businesses to serve a wider customer base and also to gain more disposable income to purchase more products.

 

Loans Are For Businesses!

Coincidentally, I worked as a Communications and Marketing Manager at an international microfinance bank in Nigeria and had a general understanding of the operations of credit and loans, especially for Micro, Small, Medium Enterprises (MSME’s).

The loan eligibility criteria were pretty much straight forward, “own a business, be in the business location for at least 3 years, be between 18 – 60 years of age, be a Nigerian Citizen or a resident for at least 10 years.” Some more stringent rules did apply especially those related to providing collateral, having your business appraised, review of profit & loss statements, past loan history, repayment records with a minimum risk ratio, presenting viable business guarantors among others.

Other than securing loans for business projects, I had never been inclined to take any loans. This is as a result of our culture or my principle of spending what I have, hence, when individual and Staff credit facilities were made available, I usually opted to work with cash in hand or resort to traditional funding sources such as support from family/friends if ever required. The thought of taking out personal loans was just not “a thing” and coincidentally the economy I was exposed to was not built on the foundation of individual credit.

West African Culture of Credit

Don’t get me wrong, the world is a global village and much of the influences from the western culture are now gravitating to different parts of the world including West Africa. Even though individual credit scores (as is the case in Europe and North America) does not exactly influence your access to personal loans or business loans, your repayment history for past loans does. No financial institution would be willing to issue loans to an individual or business with a high-risk portfolio.

Today, telecommunications providers in West Africa now offer users a credit line where they can borrow digital credits to make calls and buy data, using credit purchase patterns as the model for lending airtime to users. With telecoms providers now offering airtime credits, it is only but a matter of time before the financial services sector goes full swing into issuing individual credits and using scores as a guarantee to issue loans in the future. The huge question mark however would be how the financial institutions will define credit models for the African consumer that would take into consideration the growing poverty index and access to individual disposable income.

What’s Your Credit Score?

It is an entirely different ball game out here in the North American region where “credit is king” and holds the key to accessing loans for basic to complex facilities such as accommodation, mortgages, auto, or school loans, among others. Most scholars have defined credit to mean “a customer’s ability to obtain goods or services before payment based on trust that payment will be made in the future.” The key element to note here in building great credit scores is in “making the payments.”

I am quickly getting the hang of the Credit score concept and the importance of building good credit ratings and the role this plays in your ability to access facilities in the future. There are basic credit card usage models that newcomers like me must keep in mind to ensure you do not build more debt than you can handle and a horrible credit score rating.

Method To This Madness

• Use your Credit Card – Make regular/basic purchases such as shopping for groceries, paying your phone bills, and basic day-to-day payments with your credit card. This is how you start to build your credit usage!
• Research – I read in Will Roundtree’s book called “Credit is King: Transforming Your Credit to Royalty” that you should not spend more than 30% of your available credit, as this can affect your credit score. So do your research and be sure to have access to information to guide your credit card usage especially if like me, it has never been a tradition of yours. Better to know enough, than nothing, and fall into debt.
• Pay Back – Be sure to pay back the money borrowed or “credit” before the due date as interest rates start to kick in for every late payment. So, here’s a simple model I devised for this, I have XYZ physical cash in my account and an XYZ credit limit. If I spend ABC to buy groceries, I must be sure to have the ABC equivalent in my deposited XYZ physical cash to repay. Now, do you get it? You cannot use your credit card as a long-term loan as it does have long term debt repercussions.
• Pay in full – If you pay up your balance in full rather than fractions on or before the due date, you do not get charged any interest. Take note that delayed payments and fractional payments could earn you higher interest rates. Resist the urge to utilize credit without repaying!

Once you have mastered the basic rules that apply to the use of credit cards and how to build good credit scores, the world would be your oyster! What are some of your experiences in a world where “credit is king?”

Feel free to share in the comments section!