Credit scores linked to National Identity
Today, I read the news about the Nigerian government planning to implement a policy on credit scores, where it’s going to be linked to an individual's national identity. The idea sounds nice because I know a bit about its usefulness, and it's already being used in many Western countries.
A credit score is simply the record of someone's financial behavior with an account. It shows the person's creditworthiness, and this is usually checked whenever someone wants to take a loan, to help determine whether they are capable of paying it back, especially when a collateral is not involved.
Now, if this credit score is linked to someone’s national identity, it means that no matter the bank the person visits, the bank will be able to see the individual’s credit score. Previously, this was basically handled by individual banks on their own terms, but now that it’s going to be linked to a national identity, any bank a person visits will have access to the person’s credit score.
The biggest reason this is being introduced is to regulate the way people collect loans.
The thing is, there are a lot of people who collect loans from one bank, then go to another bank entirely and collect another loan, and then proceed to other banks and continue the same pattern without paying back. These kinds of people end up having a very large amount of money on their loan accounts, while making the banks run dry, because they refuse to pay back. The money they are holding and refusing to repay is money that other people are supposed to borrow. But since they won’t pay, the banks don’t have enough funds to lend to others. This is terrible!
This act is often carried out by wealthy individuals in the country, and because they have influence, it becomes difficult for banks to recover the loans. Some "smart" average people are also into this act. They do it just to keep having access to money for their investments.
This is where the importance of the new policy comes in.
Since all banks can now access every individual’s credit score, it will be impossible for anyone to borrow from multiple banks without first clearing their previous debts.
Did you understand it? If not, let me explain with an example.
If Mr. John has borrowed money from Heaven and Earth Bank, before he can be allowed to borrow from another bank, he will need to pay off the loan he took from Heaven and Earth Bank first. The new bank that Mr. John wants to borrow from will check his credit score. Since it’s linked to his national ID, they can easily verify his history and deny him the loan if he hasn’t cleared the old one.
The idea looks so good because it will encourage a fair distribution of loans, instead of concentrating it in the hands of a few people as was the case before.
My hope is that this new system works as stated and that people won't jeopardize it through political influence.
Thanks!
Posted Using INLEO