Credit scores are an essential financial tool that make so much possible in the modern world. They help Kenyans access financial products and services such as loans so that they can start small businesses, buy a dream home, or just make essential day to day purchases.
Assisted by these scores and other information, the country’s banks and other financial institutions offer credit or loans, make lending decisions, and determine the interest that they will charge for these products by assessing the risk of each consumer that applies for credit.
One of the many ways lenders assess the risk of a loan is by referring to a consumer’s credit score – a three-digit number calculated from their credit history that is provided by any of the three credit reference bureaus currently operating in Kenya: Creditinfo Kenya, Metropol CRB, and TransUnion Kenya.
Despite the progress in usage of consumer credit scores, some borrowers continue to have concerns about the use of adverse credit information. Specifically, there is a perception that banks use adverse credit reports to deny borrowers access to the loans they have applied for. To alleviate this concern, the Central Bank of Kenya has mandated all CRBs to display prominently on credit reports the Banking (Credit Reference Bureau) Regulations 2020 statement that “a customer’s credit score should not be used as the sole reason by a lender to deny a customer a loan.” This statement will serve as a reminder of the appropriate use of credit reports and will be beneficial to both customers and lenders.
Only finance providers can decide whether to offer credit to a customer, or to decline their application. Credit bureaus provide some of the information lenders use when making the decision, but each finance provider has their own individual lending policies and criteria for granting credit to a consumer, just one of which is a credit score provided by any one of the three credit reference bureaus.
A credit report reflects a consumer’s payment behaviour over time, using a range of data, including payment history, credit utilisation and the number of credit enquiries requested from sources such as banks, micro finance institutions, savings and credit cooperative organisations (SACCOs), and traders. It can enable Kenyans to get access to credit products they might not otherwise be considered for and can lead to preferential interest rates, product features and conditions.
Payment history is the most important aspect of a credit score, because it shows how consumers have managed their finances, including any late payments. A consumer’s payment history is entirely within their control and responsibility – just as improving their credit score is made possible by a good repayment culture that includes borrowing wisely and repaying promptly.
Consumers that have never taken out a credit product do not have a credit score – which means that they haven’t been ‘tested’ with credit, and lenders may be uncertain if the loan they grant will be paid back according to the terms of their agreement. Consumers who don’t have a credit score can still apply for credit, but lenders are likely to set more stringent terms for first time borrowers as they commence their journey to building a credit score.
“Credit bureau information and insights enable a more inclusive lending system by providing objective data that helps lenders assess consumers’ ability to manage their credit. Ultimately, this system and the lending it supports enhances Kenyans’ quality of life and strengthens our economy,”
says Morris Maina, CEO TransUnion Kenya.
“Credit scores are factual representations of a consumer’s credit history. Finance providers have their own risk policies when it comes to extending credit, and a consumer’s credit information is just one factor they consider when they make decisions.”
“Access to credit is the foundation for a healthy economy, but one of the obstacles for credit access is a lack of information about borrowers,”
says Kamau Kunyiha, CEO of Creditinfo Kenya.
“Financial institutions need accurate and relevant information about consumers to help make informed lending decisions. This is why credit bureaus services are crucial – they provide the data financial institutions need to provide individuals and businesses access to essential financial products and encourage a healthier financial ecosystem.”
“Credit bureaus manage credit risk throughout a consumer’s financial life cycle, helping to increase financial institutions’ efficiency and reduce their exposure to risk,”
says Gideon Kipyakwai Group CEO at Metropol.
“We use information from a variety of sources, such as Banks, MFIs, SACCOs, HELB and other service providers to translate consumers’ credit behavior into a score that is just one measure used by financial institutions make their lending decisions.”
Existing regulatory frameworks in Kenya ensure greater financial inclusion, underpinning fair and equal access to credit information by consumers and businesses. Being able to extend credit based on informed decisions can fuel economic growth, increase consumer access to essential resources and enable more efficient allocation of risk, costs and financial reserves.
Access to consumer credit information enables consumers and private companies to freely transact with each other as the more objective information the business has, the more accurately it can meet consumer needs and preferences.