If the bank unexpectedly refused to give you a loan or the new employer changed his mind about hiring you, perhaps the reason lies in your credit history. It’s worth checking your credit history, even if you are 100% sure that everything is ok. We explain in detail what the credit score is, what it can tell about you and what to do if you were credited with other people’s debts.
What is a credit score?
A credit score is an information about your loan obligations. It shows which banks, microfinance institutions (MFIs) or credit consumer cooperatives (CCCs) you applied for loans and borrowings; when it happed and how much you borrowed; if you are a co-borrower or guarantor of other people’s loans; whether you repaid your loans on time or delayed payments.
This information is stored in special organizations – credit bureaus. There are several bureaus, and each bank, MFIs and CCCs have the right to choose any bureau to which they will transfer information about their borrowers. Often financial institutions send data to several bureaus at once.
That is, if you took loans and borrowings in different places, then most likely your credit history is stored in parts in several credit bureaus. And it will be necessary to obtain data in all these bureaus in order to collect a credit history together.
How to check your credit score?
You can get one free credit report each year by calling 877-322-8228 or visiting annualcreditreport.com.
Who cares about my credit history?
- Banks, MFIs and CCCs. If you apply for a loan, be prepared that these organizations will study your credit history. And you can get a denial if you have any problems with credit rating;
- Insurance companies. According to credit bureaus, there is a connection between how a person repays loans and how he or she behaves while driving. Drivers who are regularly late in payments are usually more likely to get into accidents and cause insurers losses. Therefore, insurers also request a credit history in order to offer people more fair prices for policies;
- Car sharing services. Car-sharing companies also ask for credit history and credit ratings of drivers in credit bureaus before allowing them to use the service. If a person owes large sums and does not repay loans, companies will not give him or her access to their cars;
- Potential employers. Such verification is more relevant for managers in the banking sector, the public sector or large commercial structures. An employee with a lot of debts, delinquencies and bad credit history does not look very attractive to the employer. If the applicant repays debts on time, then this is a good sign. The employer can evaluate this as a manifestation of reliability and accuracy, as well as the ability to manage finances.
Who can get my credit history?
- Only you can get a complete credit report, which contains full information about your loans, including the closed ones;
- The main part of your credit history and your credit rating can be viewed by a bank, insurance company or employer (any legal entity or individual entrepreneur) with your written consent;
- Any legal entity can receive the information part without your consent, but only for the purpose of giving you a loan.
What is a perfect credit score?
A perfect credit score is a relative concept. Having studied a person’s credit history, one bank can give him a loan, and another can decline a request.
Good credit history should include loans that you periodically take and repay on time. For the bank, this is better than a complete lack of loans in recent years.
If you already have an outstanding loan, which you repay on time, you are likely to be approved for another loan (but possibly for a smaller amount). But the main thing is to really evaluate your solvency and not to take new loans when the former cause difficulties with paying off the debt.
The most important thing for credit history is the absence of systematic delays in payment for a long time. A few delays for a couple of days are unlikely to cause a failure.
How often is the credit history updated?
Lenders are required to transfer information to credit bureaus within 5 business days. For example, if you closed a car loan on Monday, the bank will have to inform the bureau before the weekend.
The credit history is stored in the bureau for 10 years.
That is, a bank or an MFI is not interested in what kind of loans you took decades ago. Keep in mind that they will pay particular attention to your loans over the past 2-3 years.
I repaid loans on time but I have a bad credit score. How did it happen?
Unfortunately, this happens. If you are sure that everything was paid on time, then this may be due to the following reasons:
- Your credit history has not been updated yet. Make sure that 5 working days have passed since the moment you closed the loan. Do not forget that the information does not arrive at the credit bureau instantly;
- Credit card debt is repaid but the card is not closed. Banks usually charge a fee for servicing a credit card. Even if you repaid the loan and no longer use the card, the bank regularly writes off this fee – and debt may form on the card. Therefore, unnecessary cards should be canceled. Contact the bank, ask to close your card account and be sure to save documents on the termination of the contract. After a month or two, you’d better make sure that the account and card are 100% closed and you have no debts;
- Once upon a time you took a loan, repaid it and forgot about it. But it turns out that there remains a small unrepaid amount for insurance or a fee, and the bank did not inform you about this – you may have changed your phone number or address or there were some other reasons why the bank did not notify you. As a result, there is a delay in your credit history;
- Bank or bureau employees are mistaken. For example, they made a mistake in your name or ID number. As a result, someone else’s debt may hang on you. It also happens that the loan is repaid, but the lender did not transmit new data to the bureau. Or the bureau has not yet taken new data into account.
How to fix a mistake in your credit history?
Write a statement challenging the credit history and contact the bureau directly in which the credit history is stored.
After that, the bureau will forward your application to the creditor and will wait for a replay. If the bank or MFI confirms that you are right, the bureau will correct the mistake and inform you in writing. The term is 30 days from the day the bureau receives the application.
The easiest and fastest way to visit the bureau and fill out an application on the spot. Do not forget your ID and collect evidence in advance: a certificate of debt repayment from the creditor, receipts for loan repayment – all that confirms your innocence.
If you cannot visit the bureau, then the task becomes more complicated: you have to send a statement certified by a notary public by regular paper mail. Also, do not forget to attach documents from the lender – for example, certificates of debt repayment. The application form can be downloaded from the bureau website.
If everything is transparent on your part and you have evidence, then the financial institution will confirm your case and the bureau will correct your credit history. If the bank, MFI or CCC do not agree with your arguments and insist on an unpaid loan or delay, then you will have to solve the problem through the court.
Your credit history is most likely stored in several bureaus, so you need to correct it in each of them. After all, there is no guarantee that the creditor will notify all the bureaus about the need to correct the mistake.
This is not a mistake, I really have a bad credit history. How can I improve it?
You cannot delete anything from your credit history. But if you want to continue to take loans, you can improve it. Take very small loans or loans and repay them on time. Get a credit card or buy household appliances on credit.
In a couple of years (and financial institutions are especially carefully studying your credit activity over the past 2-3 years), you will create a new history of relations with creditors – a good one. Do not forget to pay your utility bills on time. Most likely, you will be considered a reliable borrower after such “procedures”.