Who are the credit bureau and what do they do?

Ever heard of the credit bureau?

The police officers of the lending world!

In this article, you’ll learn all about them, what they do and what it means for you as well.

But first, let’s put meaning to the word “credit bureau”

Credit bureaus are privately owned and privately operated data collection and analysis companies that gather and store information relating to the credit ratings of individuals and companies. They make these accessible to financial institutions e.g banks, lenders, microfinance institutions, etc. Service providers or landlords may also have access to credit reports.

Not all countries use credit bureaus but for the ones that do, their services are only applicable to the country they are situated in, this is because a credit score is only applicable within its respective country. If you decide to move to another country, you’ll likely need to build a new credit score.

Let’s dig into some fun history! Shall we?

In the late 1980s and the early 1990s, the banking industry experienced a wave of financial distress that was largely due to predatory debtors who hopped from one bank to the other; borrowing without repayment. These persons would abandon their debt obligations from Bank A, and proceed to obtain yet another, from Bank B. Wickedness abi?

This unrepentant behavior made the Central Bank of Nigeria see an urgent need to find a solution. A central database with everybody’s credit information was established in a bid to regulate the evil that men do.

As such, the Credit Bureau of Nigeria was established and was backed by a legislation Act that obligated banks and financial institutions to update lists of borrowers. As time went on, this highly updated and functional list determined the eligibility of intending borrowers. Voila! Serial loan defaulters reduced!

Credit bureaus are licensed by the Central Bank of Nigeria (CBN) and these licenses were granted to three private companies:

FirstCentral Credit Bureau, which was incorporated as XDS Credit Bureau Limited in May 2005. CRC credit bureau was established in 2008 under the laws of the Federal Republic of Nigeria. CreditRregistry (CR services), which happens to be Nigeria’s oldest credit bureau, was established in 2003.

Below are some of the most important functions of the credit bureaus in Nigeria:

The information obtained by the credit bureau usually includes the contact details of individuals and companies. It also cuts across a history of previous loans obtained by the borrower. Information provided can further include whether or not the loan was paid in due time, as well as cases of bankruptcy and court order. This is especially useful for untruthful borrowers with hanging court charges.

The Credit Bureau Association of Nigeria wields the capacity to store a large amount of data in one place. Not only will this remain over a long period, but it’s also in a safe condition. Ideally, there is no room for loss, theft, or alteration of files and data (desperate borrowers can’t tamper with their data). This enables lending institutions to have long-term and accurate access to borrowers’ information.

When a lender requests credit information, the Bureau ensures it provides the report usually spanning 3 years. This ensures that the lender makes an informed decision regarding the creditworthiness of the prospective borrower.

Remember our story of how credit bureaus came into existence? Exactly, to manage the credibility of information given to lenders by borrowers. To curb lie-lie borrowers.

In the absence of credit bureaus, anyone could easily obtain loans from multiple lenders and run away with the funds.

It’s not only lenders that benefit from the credit bureau. Before its establishment, gaining access to loans was tough. In those days, you either had to own valuable collateral or you knew someone that knew someone…You know how it goes.

This was because there was zero trust in the credit world and lenders were constantly at a loss, therefore they had strict checks in place before a loan could be granted. But, since the establishment of credit bureaus, it’s relatively easier to access loans. The bureau only provides a credit information report to your lender and you get vetted. Win-win situation right?

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If you have more questions or need help getting your first loan, send us a message at support@irorun.com, and we’ll be happy to assist you!