Why Lenders Check Credit Scores

What is a Credit Score and why lenders have to check that before making a lending decision to a borrower?

There are three Credit Reference Bureaus (CRB) in Kenya which calculate Credit Scores  for borrowers both individuals and companies.

According to Creditinfo, one of the CRB licensed in Kenya, this is the how a Credit score is calculated and why lenders check it;

#FinancialLiteracy
The first question a bank asks when confronted with a loan application is essentially “How do I know I will get my money back?”. 

To answer this question, lenders compile a profile of the client, which normally includes dozens and dozens of variables like age, job, family situation, whether one has had loans in the past and whether they have repaid them, etc. 

Each variable is assigned “points”, and in that way a lender can build a numerical portrait of the credit behaviour of a client. 

Scores go anywhere from 200 or 300 to 900, and the higher your score, the “better” payer a client is, and most probably, the better the terms of the loan.

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