Banks evaluate loan applications on the 5Cs of credit: character, capital, condition, capacity and collateral.Character cannot be measured with a formula because it is a reflection of personal qualities, reputation and habits.

It is determined by credit history, especially past repayments. This track record — stored with the credit reference bureaus — speaks on your behalf when applying for another facility.Based on the report from the history folders, the bank will decide whether to reject the application outright or process it by considering other criteria under the 5Cs.  Defaulters have a record of delinquency which reflects risk; and, depending on a bank’s tolerance, the request can be dropped or a premium interest loaded to cover the level of danger, so to speak.Before accepting the loan, ascertain whether you are paying a loaded interest rate above the normal rate.There is a possibility of shouldering a burden that is not yours, hence the need to check. You need to establish on your own how the interest rate charged on your case compares with others.You need to establish what your credit report at the bureau says.Remember that this is your reputation collateral and you should be armed with it to gather confidence to negotiate a cheaper facility. Many people consider it futile obtaining a copy of their credit report from the bureau especially when they have never taken a loan facility from any bank.They assume their records are clean or do not contain a thing and are creditworthy.This is a misconception.The credit risk involved in lending to a customer who has never taken a loan is undetermined and so should be treated in the same way as undetermined risk.Undetermined risk is equated to high risk and consequently any lending will call for risk measures such as high interest rate and an expensive asset as collateral.It is, therefore, vital to obtain a copy of your credit report before applying for a loan.A copy of your credit report is free once a year but it attracts charges on subsequent inquiries. To obtain one, visit a credit bureau and get their requirements, including original copies of national identity card and a pin certificate. Why? You have to introduce yourself.Just like any formal document, credit reports may have inaccuracies that if not checked prior to application may give a wrong picture of you before a potential lender. In case your credit report contains some errors or is disputed, follow up with the lender that submitted the information for a review and a correction, which must be submitted to the credit reference bureau. Where your history shows neither negative information nor successful repayments, contact your previous lenders to update the information.Currently, banks are compelled to share negative data on non-performing loans and, therefore, updating your credit report as a timely payer is the right move and it is your responsibility. Correct informationWhether you have applied for a loan facility or not, you need to obtain a copy of your credit report and ensure that only the correct information is kept. With the confidence you gather upon ascertaining your credit record, you can shop for a cheaper loan facility, starting with the bank with whom you have had a long positive relationship.Since each bank has own risk tolerance limits, the interest rates quoted and the attached conditions will be different. When you have many choices, you could settle on the favourable for further negotiations.Generally, a good credit history is equivalent to a good character and can save you from the stress of looking for collateral.A bad credit history is a cost because a loan request will go through various departments to ascertain whether the bank can lend to you.Mr Opiyo is a personal financial adviser with Tolerance Employee Financial Advisors Limited. E-mail: