Nengi Phil-Ebosie: What is your Credit Rating?

“Two things you will never be without: Your reputation and your credit rating. You can destroy both in an instant and spend the rest of your life trying to get them back” Larry Winget.

Your credit rating is your credit-worthiness. A bad credit rating is usually associated with someone with a history of not paying bills on time or never paying them.

How would family, friends, colleagues react when asked to rate your credit-worthiness? High, below average or basically term you a ‘Bad Debt’?

In times past, I would have blamed a bad debt response on the economy; alas, I have come to terms that some people have a hideous attitude to managing and repaying borrowed money. They are swift to borrow, don’t like to pay and are usually prepared to jeopardize their image and relationships at the expense of repaying. I must stress that this does not apply to everyone.

Let’s look at these fictional scenarios below:

Scenario 1

Ray erroneously transferred money to an unknown person’s bank account, let’s call him Ben. Ray somehow used social media to get in touch with Ben, apologized for the error and asked for Ben to return the erroneous transfer. Ben promised to return the money, but days turned into weeks and then months and it became clear that Ben never intended to return the erroneous transfer.

Ray had to put on his thinking cap. With the help of social media, he was able to locate Ben’s immediate family and church community and then sent messages to each of them which put Ben under pressure and made him accountable. His family and the church leadership reprimanded him and eventually, he started paying up the money in bits.

Scenario 2

Laura had approached her dear friend, Cynthia, for some financial assistance to enable her settle some demanding financial issues and promised to repay in a couple of weeks. Cynthia didn’t see any harm in assisting a friend and loaned the money to Laura. It’s been over one year and Laura has developed permanent amnesia; she has not paid back the money nor does she even say a word about it.

Cynthia stopped asking for her money after several weeks and months of reminders.

The experience has taught Cynthia to be very cautious with lending and also strained their relationship. In fact, Cynthia chooses not to lend anymore as Laura betrayed her trust. This is a case of “Fool me once, shame on you, but fool me twice, shame on me”.

Senario 3

Lagbaja Enterprise – a start-up that deals in fashion clothing, in a bit to penetrate the market, made sales on credit to selected referral clients – with the promise to receive payment at the end of the month.

It’s 7 months after, and Lagbaja Enterprise is yet to be paid, even though some of the debtors live lavishly. They can afford to repay but they have refused to pay. Lagbaja Enterprise, unfortunately, didn’t hedge against this unforeseen circumstance which resulted in the crumbling of Lagbaja Enterprise’s business.

Bad credit rating appears to be common in each of these scenarios. There is a saying that when you lend, you lend on the strength of the character and integrity of the borrower.

What are the outcomes of Bad Credit Rating?

• Loss of credibility and integrity.
• Difficult getting financial help in times of dire need.
• Trust and friendships may be ruined.
• Could lead to the collapse of the lender’s business.

If you borrowed and are unable to repay as, and when, due,

• Don’t shy away from your responsibility by going missing in action. Find a workable plan with your creditors.
• Negotiate and renegotiate a repayment date and terms if possible. You can negotiate to repay in installments.
• Always keep the lender abreast with the situation of things sincerely and be polite.
• Create a budget and prioritize spending.
• If funds were erroneously transferred to your account, report to the bank for a reversal of the erroneous transfer. Do not make use of the funds, it doesn’t belong to you.

A personal loan offers the opportunity to dig yourself out of a hole. It also has the probability to become a bigger hole. Don’t let a personal loan ruin your reputation.