Prolonged delays in paying utility bills, inattentive guarantees, hasty borrowing – these are just some of the reasons that affect credit history and thus the ability to get a loan and a better interest rate.
How can you quickly damage your credit history and then recover it, says Sergey, Head of Consumer Lending at Good Finance.
One of the ways in which credit history can be damaged is through late (sometimes even accidental) payments – both late payments for a few days and long-term unpaid regular service payments (including utility bills, internet bills or electricity bills, etc.). Active debts have a critical impact on a client’s credit history, so it is important to pay them off, but keep in mind that a post-payment is overdue and does not benefit the credit history.
When assessing a customer’s credit history, the credit institution’s internal information on the individual’s credit history and payment history, as well as data from various external registers, such as the Lite Lender’s Credit Register, the Credit Information Bureau, and the Insolvency Register, are taken into consideration.
“It is important that there are no active delays, and so is the amount and regularity of delays, as all of this indicates the customer’s discipline in making payments. A very unfortunate fact is the entry into the debtors ‘base of the Lite Lender’s Credit Register, which includes debtors with at least ninety days’ debt in excess of $ 150. In addition, the Lite Lender’s debtor’s database maintains information on both assets and past debts. Sometimes a customer thinks that when the penalty interest is paid, the bad credit history is also deleted, but unfortunately, the credit history remains the same, and sometimes the limitation period can be as long as ten years, ”explains Good Finance.
He recommends keeping a close eye on the cash flow in your account, and if there is any payment to be made a few days before your salary, it is usually possible to change the payment date or have an automatic payment made by your bank to avoid late payment. Sergey Romunuk emphasizes that as soon as the client has solvency difficulties (reduced income, unemployment), it is best to immediately contact the credit institution and seek solutions – the bank will help the client to find the most convenient solution.
Traps can also be a guarantee
Sometimes a person does not even think about it, but just as much risk as late payment is guaranteeing another person who tends to delay payments – this too can have a negative impact on credit history. Therefore, before taking on a guaranteed obligation, you also need to look at your ability to repay these loans in the future.
It is not enough that a certain amount of money is deposited into a bank account each month, it is important for positive credit history that the client’s income is official, regular and can be proven by a real employment contract.
Very bad credit history can be affected by borrowing that does not match the customer’s ability to repay the debt. Therefore, when making a commitment, the customer must critically and responsibly evaluate their options. As a result, the regular use of fast credit can have a detrimental effect on your credit history. “One quick credit that a customer is able to repay on time does not have a negative impact on credit history. Difficulties start when this loan cannot be repaid within the time frame previously planned. In such cases, it is often extended several times, or another larger credit is taken to clear the previous one, which may continue several times. This shows that the client has difficulty in planning his financial flow, ”explains Sergey Romanyuk.
Traditionally, borrowing should not exceed 30% of income. Of course, the higher the income, the higher that percentage may be. Conversely, the lower the income, the lower the amount that can be set aside for credit payments.
Sergey Romunuk mentions some other risks that can affect a customer’s credit history in the eyes of the bank: “Living from pay to pay, without savings and financial planning, because saving both disciplines the customer and shows the ability to make savings. Conversely, if the customer does not have the resources to maintain his existing standard of living, credit may become a heavy burden in the future. ”
Credit history correction
Unfortunately, repairing your credit history is slower than damaging it. And sometimes it takes up to ten years, during which the client receives a solid income and carefully covers all payments to gradually restore trust in the lender’s eyes. But it is possible. And most often, new credit agreements can be concluded by gradually increasing the loan amount.