How to fix your credit score? Bad credit history is one of the most common reasons for refusing a loan.
General Director of the financial marketplace Sergey Leonidov tells how to stop being an unwanted borrower in the eyes of a bank.
Where does credit score come from?
The credit history contains information about current and closed loan agreements that the borrower has entered into with banks and MFOs over the past seven years. From history, you can find out where and how much money the client took on credit, whether there were pledges and bank guarantees, surety and – importantly – the client’s payment discipline: the presence or absence of overdue debts.
Credit histories are stored in credit bureaus (CRB) – and the history of one person can be simultaneously in several bureaus. There are nine such companies in Russia now , among the largest are NBKI, OKB and Equifax. You can find out which CRI contains a credit history using an application through the State Services website . You can request an extract from your credit history in the BCI (free of charge – twice a year), some banks and organizations – partners of the BCI.
What causes the credit history to deteriorate
Based on data from your credit history, a credit rating, or scoring score, is calculated. The higher it is, the higher the likelihood of loan approval – more banks will want to issue a loan at a lower rate. And although each credit institution calculates the score in its own way, there are parameters that are guaranteed to affect the credit rating..
1. The presence of delays. This is perhaps the most important factor. The credit rating is significantly worsened by current overdue debts, systematic delinquencies, debts for more than 30 days and, of course, loans sold to collectors or hopelessly written off loans. Minor technical delays – when the payment did not arrive on time, for example, due to the bank’s work, do not affect the scoring. But nevertheless, it is also better not to allow them.
2. High credit load. The credit load is the ratio of debts to the borrower’s wages. It is desirable that monthly loan payments do not exceed 40% of the client’s official income. Moreover, when calculating the debt burden, credit card limits, permitted overdrafts on debit cards and other financial obligations of the borrower are also taken into account: alimony, rental housing, providing for dependents, and so on. If income falls or debts increase, then the credit load increases – and banks may refuse a new loan, even taking into account the ideal credit history.
3. Lack of loans. A client’s clean credit history is rather bad news for a bank that plans to issue a loan to him. Even if this is a salary client and the bank knows the stability and size of his income, it is not known how disciplined he will be as a borrower. In this case, credit institutions often prefer not to take risks and approve a small loan at a moderately high interest rate.
How To Fix Your Credit Score?
The strategy for increasing the scoring score depends on the reasons why the credit history was damaged. In addition to everything that we have listed above, errors or scammers may be involved in the story.
1. If there is a mistake in the credit history. For example, you have noticed delays – technical or even problematic – but you are sure that you have fulfilled your obligations properly. In this case, it is necessary to dispute the information contained in the credit history.
You need to submit an application to the BCH for making changes (or additions – if, for example, a previously repaid loan suddenly disappeared from history). BKI is obliged to request additional information from the bank that made a mistake, and inform you of the results in writing within 30 days from the date of the application. If you disagree with the decision of the BCH, you can challenge it in court.
2. If fraudsters intervened. For example, you discovered one or more loans that you definitely did not apply for.
In this case, you should immediately contact the police. It is important to take a coupon notification that the police have accepted the fraud report. Next, you need to write a written claim to the bank or MFO, where the loans were found, detail the circumstances of the case and attach a coupon from the police. If the credit institution refuses to admit the mistake on its own and declare the loan fraudulent, you will have to file an application with the court. On the basis of a court decision – or a bank decision – it is possible to declare to the BCH about the correction of the credit history.
3. If there are delays. Of course, the current overdue debts must be paid off. Next, you should regularly make payments on existing loans and not even allow technical delays.
After the loan is closed, it is recommended to open and repay a few more loans as flawlessly as possible. Credit cards are also suitable – they are easier to get for a borrower with an imperfect history than, for example, a mortgage or a large cash loan. Your goal in this case is to show the bank that you have improved and become a disciplined customer.
4. If the loan load is high. It is necessary to throw efforts to pay off existing loans. First of all, it is worth dealing with “expensive” loans (debts in MFIs, if any, credit cards or cash loans).
We recommend that you close credit cards and debit cards with authorized overdrafts, as their presence also affects the debt burden – even if you do not use them. Another option to reduce the burden is to increase the size of the official income.
5. If the credit history is clean. Banks will be wary because they don’t yet know what kind of borrower you are.
In this case, the best – and most profitable – option would be to open a credit card and make the necessary payments on time (preferably in time during the grace period). More likely to get a good credit line from a bank that has access to information about your income.