Building Credit: Things You Need to Know
At the end of 2018, the National Credit Bureau announced the launch of a large-scale project to assign a personal credit rating to each person. With it, you can look at yourself “through the eyes of the bank”, evaluate the quality of your credit history and, most importantly, understand what conditions you can count on bank loans. Let us consider in more detail what credit history is, what it is formed of and what it affects, as well as what methods can improve it (in order to increase your credit score).
What is a credit history and how is it formed?
Credit history consists of the title block and the main block. The title page contains information about the person: name, place and date of birth, passport data, SSN. The most informative block is the main one, data on all loans is stored here: both active and repaid. Here you can see how much and when a person took out loans, you can see the history of making regular payments, find out about late payments, if any. Information on credit cards and installment cards is also taken into account here. In addition, this includes information on court decisions on borrower loans, if any.
Previously, each credit institution maintained its own register of loans and borrowers. Today, all information is contained in the Credit Bureau, where banks, MFIs and other lenders submit reports on credit obligations, payments on them and the bankruptcy of individuals.
Credit Bureaus receive information not only from banks and credit organizations but also from the bailiff service, telecommunication companies and housing and communal services companies. Alimony payers, utility debtors, and people with long-term debts to a mobile operator may also have poor credit history, even if they never took loans.
Lenders are obliged to transfer data about borrowers to at least one Credit Bureau. Information in the credit history is stored for 10 years from the date of the last change of information.
Do I need a credit history at all and what does it affect?
Credit history is an indicator of responsibility and diligence; therefore, it is interesting for many organizations that enter into interaction with citizens.
- Banks, microfinance companies and credit consumer cooperatives request credit history to analyze a potential borrower and, in the event of a high debt burden or bad credit history, may refuse credit;
- Insurance companies often request a person’s credit history before applying for an insurance policy;
- Potential employers are also interested in credit history, especially when it comes to representatives of banking management, the public sector and large commercial companies. Good credit history and stable payments of up to 30% of monthly income indicate a person’s responsibility and his or her ability to manage finances.
How to improve credit history?
Credit history can be bad for two reasons:
- past due delays;
- misunderstandings and errors that occurred not through the fault of the borrower.
In the first case, you need to focus on improving it. In fact, you can “fix” the situation in only one way – by showing that you are a disciplined borrower who can repay money on time. If you also have a valid credit card or installment card, start making purchases on them and make payments on time or ahead of schedule. It is clear that this activity will not “delete” information on your past delays from the credit history but four to six months of timely payments will increase the likelihood of approval of future loans.
If you are a responsible borrower, but your credit history is still bad, you must first make sure that all data in the credit history is correctly and timely updated after the repayment of the last loan.
Let’s say you completely repaid a mortgage a year ago, and your credit history states that you still have a debt. In such cases, you must write a statement to the credit bureau and list all the false information that needs to be changed. The bureau specialists will check for errors, the correctness of the entered data and make a request to the source of the credit history, which transmitted the disputed data. Within 14 business days, the source must either correct the credit history or leave it unchanged if the previously transmitted information is reliable. If your bank considers the information reliable, but you do not, then it is better to contact them in person to correct the error.
By law, financial institutions must transmit information to the Credit Bureau within 5 business days. If you closed the loan on Wednesday, next Monday the data may still not be updated, and credit history will list an open loan. You need to wait for the deadline.
A “stuck” commission or insurance on an old loan can also ruin credit history. It happens that the bank is not able to notify the client about it because it has changed the phone number or moved. As a result, delinquency appears in the credit history. Such errors are solvable, you only need to detect inaccuracies and eliminate them.
We recommend that you periodically check the credit history to make sure that there are no errors. It will not hurt to do this even before applying for a loan or mortgage, as well as in case of loss of documents, to make sure that scammers did not use them to arrange a loan in your name.
What else should you know?
To increase the likelihood of approval, we can recommend paying off existing loans and closing credit cards, if you have any, or lowering the limit on them. Keep in mind that credit repayment information is updated in the Credit Bureau for approximately 10 days. We also recommend checking:
- Validity of the ID and other documents provided by you at the time of application;
- Arrears on existing loans or credit cards;
- Fines or taxes due;
- Bankruptcy Information;
- Public trial.
In the presence of these circumstances, we recommend that they be eliminated: pay debts, fines, enforce court decisions, and close court proceedings.
The credit policy of any bank changes from time to time. So the bank can change its mind. If you were denied a loan, you can file a new application for a loan in about two months.
Category: Online Loans
Tags: credit, credit score, financial, loan