Will defaulting on loan apps ruin my credit score?

Loan apps have become the instant financial saviour for many Nigerians. With a few taps on your phone, you can access short-term loans to handle emergencies, pay bills, or keep businesses running. Yet, as readily available as the loans are, the majority of borrowers are overlooking one vital information: what if you cannot pay back?

If you've wondered, "Will defaulting on a loan app affect my credit score?" The short answer is: Yes, it absolutely can.

Here's what you need to know.

What Is a Credit Score, and Why Is It Important?
A credit score is a three-digit number that shows how trustworthy you are as regards borrowing money and repaying it. It's calculated from your borrowing history and reported to credit bureaus in Nigeria.

Lenders, including banks, fintechs, and even landlords, can use your credit score to decide whether to approve your loan applications, at what interest rate, or whether to trust you with credit in the first place.

How Loan Apps Report to Credit Bureaus Most individuals believe loan apps are outside the formal financial ecosystem, but that's no longer true.

Now, most popular lending apps in Nigeria report your repayment behaviour to registered credit bureaus. This means that if you pay back on time, it improves your credit score, and if you default or pay late, it damages it. It does not matter the amount, even defaulting on ₦5,000 or ₦10,000 can reflect on your credit report.

What Happens If You Default on a Loan App
If you default on a loan app, here is what you can expect:

1. Negative Credit Reporting
Your missed or unpaid loan is reported as a default, which stays on your credit file for a long time, affecting your future ability to get loans.

2. Harassment & Reputation Damage
Most lending apps resort to aggressive recovery practices, like sending messages to your contacts or utilizing social media threats, which, while unethical, are unfortunately common.

3. Limited Access to Credit
Once your credit score has suffered, even traditional lenders may reject your applications, or approve loans at very high interest rates, treating you as a high-risk borrower.

How to Avoid or Recover From Loan App Defaults
If you're already in repayment trouble or have already defaulted, do this:

1. Reach Out to the Lender
Most lending apps offer restructuring or easy repayment plans if you're proactive about communicating your situation.

2. Settle Pending Debts
Try to settle any pending loans, even if you must do so in installments. After settlement, request the lender to update your status with the credit bureau.

3. Monitor Your Credit Report
Download the Scorewise app to monitor your credit score, identify negative reports, and see your progress as you pay off debts.

4. Refrain from Taking Multiple Loans to Pay Off One
This typically leads to a debt cycle that's harder and harder to escape.

Loan apps can be so quick to grant credit, but they're just as quick to report defaults. Forgetting small debts today can cost you big chances tomorrow, from denied business loans to being denied apartment rentals or even job offers that require a good financial record.

The good news? A damaged credit score is not permanent. With effort and time, you can repair it. Start today by downloading the Scorewise app to see your credit score, get recommendations to improve it, and take charge of your financial future.