People who do not use borrowed funds may not even be aware of the existence of the Credit Bureau and what a credit history is. However, those who are planning to take out a mortgage should study this issue in more detail. The fact is that when checking an applicant for such a large and long-term loan, even the slightest black spots in his credit history can cause a refusal. We’ll talk further about what a bad credit history means.
What is credit history and how is it formed?
The concept of the term credit history is deciphered in Law No. 218-FZ of December 30, 2004 “On Credit Histories”; the procedure for creating/liquidating and regulating the activities of the Credit History Bureau (BKI) is also spelled out there. According to this regulatory act, this is information that reflects the borrower’s fulfillment of loan obligations, stored in the BKI. It consists of open and closed parts. The open part of the credit history contains personal information about the borrower (full name, passport details, registration address, etc.), as well as data on the fulfillment of loan obligations, in particular:
- total loan amount;
- total period of use of borrowed funds;
- loan interest repayment period;
- making changes to the loan agreement, including regarding increasing the loan repayment period, etc.;
- date and amount of actual loan repayment by the borrower;
- repayment of the loan using collateral (if any);
- facts of litigation regarding the execution of loan agreements.
The closed part contains information about the credit institutions with which the borrower dealt, as well as about all entities that requested information about him from the BKI. is formed on the basis of information submitted to the BKI by creditors. It is worth noting that since 2014, not only banks, but also credit cooperatives, as well as microcredit organizations are required to cooperate with BKI. At the same time, there are about 23 CI Bureaus in Russia today, and not all of them have integrated databases, and banks, as a rule, work with only a few of them. Consequently, different BKIs may contain different information about the borrower.
Reasons for bad credit history
Credit history can be damaged:
- due to the fault of the creditor;
- due to the fault of the borrower.
The bank is able to spoil the borrower’s credit dossier for the most part by transmitting false information about his credit obligations to the BKI. For example, there may be a case where the borrower agreed to receive a loan, but ultimately decided not to take it, and an overly proactive bank employee has already transferred the data to the BKI. Thus, an unclosed loan may appear in the file of a failed borrower. Errors may be of a different nature, but the essence remains the same - the borrower should not count on receiving a new loan until he corrects the situation.
As they say: “saving drowning people is the work of the drowning people themselves,” the borrower himself will have to correct the bank’s mistakes. To do this, you will need to contact the bank from which the BKI received false information, with an application to transfer data about the true state of affairs to the bureau. It is for this reason that experts recommend that borrowers look into their credit file information before applying for a mortgage or other large loan. Moreover, once a year the borrower can do this for free.
As for the borrowers themselves fulfilling their obligations under previous loans, the following facts can spoil the credit dossier:
- any delay in making monthly payments;
- the presence of regular or long-term delays;
- loan repayment through the sale of the collateral and litigation under loan agreements.
The prospect of you receiving a new loan will depend on how poorly your relationship with the previous lender ended. So, if a loan payment is late by no more than 5 days, and if it is repaid carefully and completely, the likelihood of being denied the next loan is small. Regular or long delays guarantee that you will be refused a loan from a large bank on standard terms, but you may be able to get a loan at a high interest rate from a small lender. But categorical non-repayment of the loan, resulting in legal proceedings, will certainly block your access to new loans from banks.
How to fix your credit history?
In order to correct your credit history, after closing an unsuccessful loan, you need to take out several more loans on time and repay them carefully. This will improve the overall impression of the borrower's file. In addition, if there is a logical explanation for the presence of overdue loans, then, in addition to other documents, it is worth attaching evidence that problems in the credit history are caused by objective or circumstances beyond the control of the borrower. For example, this could be a total delay in wages during a crisis or a serious illness of a close relative. This way you will show the bank that you yourself are a fairly disciplined and responsible debtor, but in this case factors beyond your control played a role.
In addition to justifying negative aspects in your credit history, you can submit bills to the bank to pay for utilities or communication services, which will demonstrate your high financial discipline. If there was a slight delay due to technical or other reasons, you can try to immediately agree with bank representatives so that they do not transfer this information to the BKI (although the chances that they will meet you are low).
There are also illegal ways to clear your credit history. Some organizations undertake to do this for quite decent money. Also, a number of credit brokers offer to improve the borrower’s credit history for a percentage of the transaction amount with the bank. However, when turning to such organizations, remember that any illegal actions sooner or later risk being discovered, and then the bank will not only refuse to issue you a loan or demand its early repayment (if the truth became clear after receiving the loan), but will also put you on the bank’s blacklist , which will prevent you from taking out any loans at all from any credit institutions.
Getting a loan with a bad credit history is becoming more and more difficult today. The fact is that banks check the credit history of each borrower and, based on the data received, make a conclusion about whether the loan should be issued or not.
First of all, it’s worth understanding what a credit history actually is? Credit history refers to the borrower’s past loan experience, frequency and timeliness of payments, and other data. Moreover, each bank independently assesses how significant these payments or delays are.
In this case, a completely logical question arises: where does the bank find out such information? Do banks really exchange information about issuing deputies and how legal is this?
Of course not. There are special credit bureaus that collect information about lending, process it and store it. And most importantly, there is nothing illegal here. After all, when filling out a loan application, we consciously consent to the processing of our personal data.
What is a credit report, credit score and credit history?
What a credit history is was discussed earlier. Based on all indicators of payments and arrears, the bank awards a credit rating score.
So, the credit report includes all the information regarding the borrower. Three blocks of information can be distinguished.
- The first block is dedicated to personal information. That is, this is your full name, place of work, place of residence, marital status. If the borrower is a legal entity, then its card will contain TIN, BIC, OGRN, and other important information.
- The second block is devoted to the obligations themselves. The loan term, amount, debt repayment procedure, overdue period, etc. are indicated here.
- And finally, the third block is dedicated directly to creditors. That is, information about those who issued the loan is written down here.
Can I get a credit report myself?
Since a credit report contains important information, obtaining a credit report about a particular borrower is possible only with his consent.
If the borrower himself expressed a desire to receive information about his credit history. Then he can submit an application to one of the organizations to obtain such information.
It should also be noted that the credit report is stored in the credit history bureau for no more than 15 years. Every year, any citizen can apply to receive information about their credit history. However, if such a report is required more than once a year, you will have to pay for the bureau's services.
What does bad credit history mean?
- Delinquency on loan obligations. If you closed a loan with a delay of several days or even worse, months, then this is already considered a reason for prohibiting the issuance of a loan next time and damaging your credit history;
- Inability to repay a loan obligation. There are all sorts of situations in life, and cases of bankruptcy of individuals are very common. However, if you are unable to pay off your existing obligations, in addition to other relevant consequences, you will end up with a very bad credit history;
- Constant delays in payments. This situation also occurs very often. When payments are received regularly, but late, even on the same day. Of course, this is not critical, but it is not good either;
- Operator error. It occurs very rarely, but still the human factor plays a role. In this case, there is nothing left to do but submit a request to the credit history bureau to correct the information. This situation may also arise due to a failure of the payment system. When you paid on time, but for some reason the money reached the bank much later.
How to get a loan if your credit history is bad?
So, the easiest way to solve this problem is to improve your credit history. That is, all debts must be paid off. This is the simplest and at the same time the most effective way. After all, this is the only way to gain the trust of the bank.
If this is not possible, then you can offer the bank collateral in the form of movable and immovable property. When a bank issues money as collateral, it essentially risks nothing and, if payment is refused, it will receive your property.
When this option suits you, you can contact new banks that have recently opened. They rarely check credit histories in order to build a customer base and attract consumers.
What if you try to bypass the banking system?
Today there are lending options, but not in banks, but in so-called microfinance organizations. Such companies issue loans upon presentation of only a passport. However, the disadvantage of this method is the high interest that is paid in such organizations.
Another way is to conclude a loan agreement with a private person. Today on the Internet you can find many offers from “kind people” who offer their assistance in lending. However, you should not mess with such people.
Firstly, your financial literacy may be so low that before you know it, you will be fooled. By the way, there, on the Internet, you can find a lot of examples of fraud in such cases.
Credit cards
A credit card is another option for borrowing money. The thing is that banks issue credit cards much more readily than cash loans. This is primarily due to the fact that the debt can simply be taken and withdrawn from the card, and a large percentage can be charged on the minus amount. And if the borrower also has a debit card at this bank, then everything is completely simple. The bank will simply freeze the account.
It should be noted that the bank has the right to carry out any operations with your money and accounts only by court decision.
Credit broker
A credit broker is an individual who helps you obtain a loan if you have a bad credit history. It is this person who has information about which bureau a particular bank works with. How this or that bank treats overdue payments, and so on. However, of course, such consultation is not free.
It is best to contact those brokers who charge a fee if you are 100% successful in obtaining a loan.
"Credit Doctor"
Since during the financial crisis many citizens ruined their credit history, banks decided to make money on this. Today, some banks have re-lending programs at favorable interest rates. In this case, you can combine all your loans into one big one.
conclusions
Thus, it is still possible to take out a loan with a bad credit history. Moreover, you don’t need any special financial knowledge here. You just need to choose the most suitable option for yourself. In general, it is best not to spoil your credit history and make loan payments on time. This way the loan will be repaid and the history will be in perfect order.
A bad credit history is a phrase like a death sentence for a person who is accustomed to living off borrowed funds. A sure sign of its “deterioration” is the refusal to issue a loan (microloan) from banks or microfinance organizations. One borrower can bring his credit history (hereinafter referred to as CI) to such a disrepair that banks will give him a “red light” without exception, while another can get his bearings in time and correct the situation. It all depends on the degree of corruption of the CI, so it is important to promptly diagnose the condition of this important document and understand the reasons that spoil it (including, to understand yourself, because 99.9% of the culprit for the deterioration of his CI is the borrower himself). In the article we will talk about such reasons and their consequences, and answer the question, what should a person do in such a difficult situation?
What is bad credit history?
The credit history itself is an indicator of the borrower’s solvency (conscientiousness). Law No. 218-FZ of December 30, 2004 establishes all the necessary information about the borrower, which will be transmitted to the BKI () by the sources of the CI formation, and stored there for 10 years from the date of the last change in the information in it. All credit institutions are required to transmit information about the fulfillment of obligations undertaken by the borrower: each payment will appear in this document, and if it is not completed on time, i.e. was overdue, it leaves its mark on your CI (like a blot on a blank sheet of paper). The longer the delay, the blacker, wider and more corrosive the dark spot on the blank sheet of paper (metaphor).
The sources of history formation are not only banks, microfinance organizations, credit cooperatives, pawnshops (i.e. credit organizations), but also organizations that provide utilities, communication services, as well as federal executive authorities that monitor the execution of judicial acts (or acts other organs). If a person has not fulfilled a court decision within 10 days to repay the debt for alimony, or for the above-mentioned housing and communal services and communications, then the corresponding entry appears in his credit file.
Thus, a bad credit history is the result of untimely fulfilled or unfulfilled obligations of a person (or legal entity) under credit (loan) agreements or other obligations provided for by Federal Law No. 218-FZ “On Credit Histories”. Essentially, this is an indicator of a person’s unreliability.
In some cases, a “bad” record appears through no fault of the person (more on this later), but this does not exempt him from responsibility, since any citizen can check his CI once a year for free (and as many times as he likes for a fee) and take appropriate actions in case the information found in it does not reflect reality, but is the result of an error.
It is very likely that in the future the law will establish new sources for the formation of CI, and then the financial and social reliability of any person will be in full view of those who have access to it. We, ordinary citizens, will have to think hard before violating the deadlines for paying taxes (for example, for transport or housing), otherwise the planned mortgage, by the way, will be covered with a copper basin.
Note. You may never take out a bank loan, and your CI may be damaged by late tax payments.
The severity of the credit history. When will the bank “forget” about it?
A damaged credit history is always a negative thing. But the bank will definitely pay attention to the frequency and duration of delays. The “status” of the delay is of great importance: closed or open (current). If the payment was late, but still paid, then the banks are ready to turn a blind eye to the fact of delay after some time. It will be even better if subsequent payments (or loans taken later) were repaid on time.
In fact, no one has yet come up with a better way to correct your credit history than by fulfilling your obligations in a timely manner - if they offer you something different, then you have simply fallen for scammers. If the overdue payment on an existing loan has not yet been repaid, or was repaid quite recently, then the refusal is guaranteed for you in a new way - why should the bank take the risk if you cannot even deal with current loans?
So, we can distinguish several “stages of non-fulfillment of obligations”:
1. Delays up to 5 days (technical). Such a story cannot be called ideal; there are still “gray” spots on it. But if there were not many such cases, the bank will meet halfway and issue a loan to the client. As a rule, eyes are closed when the number of such delays does not exceed three. But even with a larger number, the chances of success remain.
2. Delays up to 1 month (situational). If the duration of the period during which the payment was considered overdue exceeds 5 days, but at the same time fits within the framework of the month, the CI can no longer be called good, but rather satisfactory. But not yet critical. The probability of refusal increases significantly, but there is always a chance to get a loan on more unfavorable terms. For example, a bank may require additional collateral for an upcoming loan - a guarantee or collateral. In addition, the highest interest rates are set for such clients in order to minimize banking risks. Banks are ready to forget about such “sins” after a few (three to five) timely payments.
3. Delays lasting more than a month (problematic) and longer term– this is not just a damaged, but a very bad credit history. There is practically no chance of getting a new loan. And if any financial institution dares to issue a loan to such a client, then its cost will be very, very high, and the conditions will be unfavorable (for example, 1 thousand rubles for 10 days at 3% per day). In this case, it will be much more difficult to justify yourself in the eyes of banks - from 6 months to 2-3 years of timely payments. In such advanced cases, it makes sense to use the services of microfinance organizations that offer special programs for correcting CI (of course, not for free) - we’ll talk about this later.
4. Complete default. This includes cases where the debt under the loan agreement was collected in court. With such a past, there is absolutely no point in going to the bank - there will be an unequivocal refusal. There are only 2 ways out of this situation: take out loans from private owners at crazy interest rates (there is a high risk of falling for scammers) or wait (and this will only happen in 10 years). By the way, information about overdue collections through the court or bankruptcy will not pass without a trace for the borrower. For financial institutions, this is a serious hint of his unreliability for many years.
To understand delays more seriously: you can find out what they threaten the borrower with and what to do in this or that case.
As you can see, your credit history can be a little damaged, bad, or even very bad. It all depends on the behavior of the borrower. And each of these varieties has its own impact on the ability to borrow money in the future. And not only on the opportunity, but also on the conditions that the credit institution can offer you.
Causes and consequences. How to ruin a CI?
Globally, all causes of bad credit history can be divided into 2 groups: those that depend on and those that do not depend on the payment discipline of the borrower. But both of them cause the same inconvenience in the future.
So, your CI may be damaged for the following reasons:
1. Poor debt servicing. This is the most common reason for the formation of poor CI. The borrower, by allowing a delay in repayment of the loan, ensures troubles for himself in the future. This also includes delays in paying taxes, fees, alimony, utility bills, etc.
2. Bank employees' mistakes. Delay of a technical nature occurs when the dates and payment amounts are entered incorrectly. The banal human factor is already at work here. Each of us makes mistakes, and bank employees are the same people who are not immune from errors and inaccuracies in their work.
3. Technical failures when making payments and delays in payment “in transit”. This means paying regular loan installments through payment terminals and various electronic services. If at the time of the transaction there is some kind of malfunction in the system, the money may simply not be sent or go inappropriately. Even if you use standard payment methods, if you do it on the eve of weekends or holidays, the payment may arrive late in your loan account. Here we must take into account that not every bank processes payments on officially non-working days.
4. Fraudulent actions of third parties. A sudden deterioration in your credit history as a result of losing your passport is a very common occurrence. Remember how many cases there were. The scammers then successfully disappeared, and people who were completely uninvolved in the case became the owners of a bad credit history and were forced to deal with creditors and collectors.
5. Litigation. Let us pay attention to this once again. If the case goes to court, but the person is in no hurry to comply with the court decision (see above), then he gets not only problems with the law (and it’s better not to joke with the state), but also with his CI.
6. Applications for credits (loans). All loan applications are reflected in the CI. If, when analyzing your CI, the bank sees a large number of applications submitted by you with subsequent refusal, then it is unlikely to like it. That is why any applicant needs to move away from the practice of submitting applications to the maximum number of credit institutions (for example, online applications to microfinance organizations), and make a choice in favor of several companies.
As you can see, there are many reasons. And even those that we call independent of the actions of the borrower still, to some extent, depend on his vigilance. Agree that a careful person is unlikely to ever lose his passport or go to pay a loan at the last moment, and even through dubious services.
The consequences of a damaged credit history are not yet many - it is the inability to take out a loan in the future. This is unlikely to frighten malicious defaulters, but for the same individual entrepreneur, who periodically develops and improves his business with the help of borrowed funds, a bad credit history can become a real disaster.
If we look at it from a perspective, we cannot rule out the possibility that in the future CIs will be universally checked when applying for a job (when applying for insurance, renting a home, etc.) in order to assess our social and financial responsibility. Abroad, such checks are already a reality, and here too it is already becoming the norm. There is something to think about here...
What to do? How to fix bad credit history?
What to do when various facts indicate a deterioration in your CI? How can I improve the situation? First, get your credit history (this can be done in various online services, bank credit institutions, banks) and analyze it. The CI is sent in the form of a credit report, in which all your “sins” will be visible. If you are sure that some entries are erroneous and have nothing to do with your credit life, then try to challenge them ().
The best thing you can do to correct your CI is to add records to it about the timely repayment of the next payment. Just pay your obligations on time, and gradually the situation will improve. The very first thing you need to start with is to close the overdue payment by any means. If you don’t do this, then all your other actions to correct CI will be simply useless.
After you pay off your debt, you can already think about the next steps to improve your history: try to get a credit card (the likelihood of this is, of course, low) or contact. Do not expect that after taking one or two loans, you will be able to apply to the bank for a new loan as if nothing had happened. Most likely, you will have to undergo a longer course of “rehabilitation”, and only after that you can try to submit applications to banks, where your efforts may be seen.
In the article “How to fix your credit history?” you will learn all the ways to correct, improve and create your CI!
When you get out of a financial hole, be sure to get a credit card - this is the best tool for correcting CI, and it’s also free, except for a few hundred for annual service. Why is this so? At least read it, then everything will become clear.
So, you needed a loan. Having been refused by one bank, you went to another, but there you were unsuccessful. What's the problem? It would seem that you have a certificate of income, and the required amount is not exorbitant. People who have a bad credit history most often face such problems. What does it mean? It's very simple: at some stage in your life you refused to repay the loan or regularly delayed payments.
For banks, a client’s credit history is one of the most important criteria. And if you have established yourself as an irresponsible borrower, it will be quite difficult to correct your negative reputation. After all, the bank is not at all interested in cooperating with those people who are prone to violating the terms of the contract. In fact, your life circumstances are practically irrelevant to them. Much more important is how reliable a borrower you show yourself to be.
How is a bad credit history formed? There are several disorders that can contribute to this:
- Complete non-repayment of loan funds (this violation is the most serious, and in the future you should not count on a positive loan decision at all).
- Repeated delay in payments for a period of 5 to 35 days or more (moderate violation).
- One-time late payment of less than 5 days.
As for the last point, it is not considered a violation as such. After all, situations are quite common when a borrower deposits funds close to the payment deadline, and they simply do not have time to reach the bank in the required time. Almost no one pays attention to such little things. If delays of less than 5 days are regular, your credit history cannot be called ideal. However, most banks will not see any serious reason for refusal.
If payments are overdue for a period of five to 35 days, this is already a bad credit history. However, if the debt has been paid one way or another, the bank may subsequently approve your application for a new loan.
Clients who have not repaid loans at all in the past are not even considered by banks - they are immediately rejected.
However, a person who has always faithfully paid the debt to the bank can also have a bad credit history. Obstacles to receiving funds can be legal proceedings, or even such a trifle as a debt to a neighbor.
How to fix the situation?
Many people are interested in where they can find such opportunities, of course, they can. However, it is unlikely that you will be able to cooperate with official structures. And you will have to pay for it. Therefore, it is better to think about how to correct your credit history (or rather, improve it).
A cash loan with a bad credit history can be taken out from special services, however, as a rule, you have to pay exorbitant interest payments for such a pleasure.
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A negative credit history can lead to certain problems for the borrower (read more about the dangers of a bad credit history in the article). These include refusal to receive a loan, a ban on traveling abroad, and loss of the ability to guarantee the obligations of other borrowers to repay the loan.
However, the negative nature of the borrower’s main document is determined rather subjectively. The same client can receive a loan from one bank, but be refused by another. This is directly related to the lending policy, which is determined by a particular financial institution.
What violations of credit obligations are critical for credit history?
An analysis of the work of the largest credit institutions indicates that the application of the above sanctions does not always entail negative consequences. After all, failure to comply with loan obligations by a borrower is a relative concept. There are certain characteristics that give a clear indication that the debtor is in bad faith:
the presence of outstanding overdue debt at the current time;
presence of information about regular delays in loan payments for more than 30 days.
In the event that there were violations of loan payment terms for several days, even if this happened repeatedly, bank representatives are inclined to consider these manifestations of lack of discipline to be insignificant. Such facts are most often the result of technical failures or unforeseen circumstances arising from the payer.
When examining the contents of a personal credit report, an employee of a financial institution will most of all rely on the data that was entered into the history in the last year. It is quite possible that temporary difficulties arose in the life of the borrower, and payment deadlines were violated at a certain point, but then the overdue debt was paid in full. Some banks do not take into consideration information that relates to the period of 2008, since the global financial crisis caused a large number of violations of credit obligations in many countries.
The basis for a negative result of the review is the consideration of the outstanding debt in court. If the borrower did not want or was not able to resolve the dispute with the bank out of court, then he will most likely be recognized as an unscrupulous debtor.
Additional guarantees in case of negative credit history
It should be remembered that every bank is interested in issuing a loan, but at the same time tries to minimize the risk of non-repayment of borrowed funds. Therefore, any information contained in the borrower’s credit history is considered on an individual basis. If the bank has doubts about the solvency of the person being loaned, additional guarantees may be required from the borrower:
guarantee of third parties;
pledge of movable and immovable property;
conclusion of insurance contracts.
In addition, to ensure that the difficulties associated with repaying loan obligations were temporary, the financial institution may request the provision of documents confirming the current financial condition of the borrower, regardless of whether they are included in the main package when submitting a loan application .
