The 5 Key Factors That Make Up Your Patascore Credit Rating
By: Patascore Ltd
Tags: Financial Services, Financial Education, Credit Score, Fintech, Credit Rating

Patascore analyses an individual’s finances in order to give a holistic credit rating. As such, the Patascore system analyses mobile money data and other types of third party data to provide an accurate credit rating to an individual. It is important for individuals to understand the elements of their credit ratings in order to make wise financial decisions that will have a positive impact on their future ratings.

Credit rating initially considered an individual’s credit history to be the biggest tell-tale of their future credit behaviour. However, alternative credit rating takes more data sets into account in order to give lenders a thorough understanding of an individual’s ability and willingness to repay a loan before extending credit facilities to them. As such, the Patascore credit rating process takes 5 major factors into account.

Cash flows

Cash flows refer to the amount of money that an individual receives from external sources (inflows) and the money the individual sends out (outflows).

Cash outflows refer to the amount of money that an individual uses on various factors such as a paying bills, airtime purchase, repaying loans, gambling activities, savings, and leisure activities. Cash inflows refer to the amount of money that an individual receives from external sources aside from their own direct deposits.

An individual with a good credit rating has higher cash inflows than outflows because this situation shows that the individual has good and responsible spending habits that could also mean income to them.

An individual with good spending habits spends money on needs such as paying bills and saving regularly with a clear saving pattern. Such an individual spends minimal money on wants such as leisure activities hence their credit score grows to a higher one over time.

An individual with poor spending habits spends more money on wants such as leisure activities and gambling. This individual has poor saving habits and makes late payments on necessary bills, which leads to a poor credit score and lower credit limit over time.

2. Payment history

Payment history pertains to an individual’s previous loan repayment habits. A good payment history entails timely loan repayments and no loan defaults, which show that an individual is a responsible borrower and not over indebted. Payment history is a forecasting tool that predicts an individual’s future credit behaviour by analysing their past credit behaviour. This gives a lender insight on an individual’s loan repayment habits before offering credit to them.

3. Length of credit

Length of credit refers to the amount of time that an individual has held credit before. It gives information on an individual’s credit behaviour by analysing previous credit in terms of the loan amount taken, the repayment period, and the repayment patterns.

Contrary to popular belief, a person who has never taken credit before does not have a perfect credit history. In truth, such a person may actually have a low credit score because the lender lacks information about their previous credit habits hence they do not have solid proof of the individual’s credit behaviour. A longer credit history gives more information about an individual’s credit behaviour hence lenders may find it easier to make lending decisions in such a case.

Individuals with no credit history should start building it with Patascore by simply registering and updating their accurate personal and mobile data information to then receive personalised tips on wise borrowing before they decide to take credit from the affordable option pool recommended to them by Patascore.

4. Number of MFIs borrowed from

The Patascore credit rating process seeks to give an in-depth view into an individual’s financial status hence it accounts for the number of loans that an individual has taken from different financial institutions.

With Kenya currently having more than 200 digital lending platforms, the lending space is noticing that many borrowers have a loan stacking habit with as many as 1 in 3 borrowers reporting to have borrowed from more than one lender at the same time. Loan stacking is an irresponsible borrowing habit, which often leads to over-indebtedness because the several loan repayments tend to overwhelm an individual. Loan stacking also signifies financial trouble whereby an individual is borrowing from several avenues in order to salvage a troubling situation.

Loan stacking has a negative effect on an individual’s credit rating and lenders should be wary of lending to someone with several standing loans.

5. Debt weight

Debt weight refers to the impact that debt has on an individual’s cash inflow. Debt weight invokes the thought of literal weight that pushes down your credit score. The higher your debt weight, the lower your score and vice versa.

Debt weight accounts for the loan amount that an individual has carried in the past and is currently carrying in order to show previous and current debt weight.

It is ideal for individuals to maintain low debt weight in order to show that they can handle debt responsibly because responsible borrowing entails borrowing loans for the right reasons, repaying loans diligently, and avoiding over-indebtedness.

The above 5 attributes are only among the few out of 100+ that Patascore analyses for each individual customer in order to come up with a holistic credit score. Our approach is iterative with strategic 3rd party data providers partners to ensure robustness over time. Join us in this movement of providing a holistic credit score for anyone at anytime.

Download the Patascore app from Play store today at https://play.google.com/store/apps/details?id=com.patascore.app to find out your credit rating and understand the elements of your credit rating as we walk with you in the journey of building a strong credit score that upgrades you up the financial ladder with higher credit limits at lower interest rates,.