It is precisely such negative consequences that a borrower may have for his outstanding credit obligations to a creditor. After that, you may have to live with a bad credit history for a very long time. In this article, we decided to tell you what to prepare for if you have outstanding credit and a bad credit history, and how to fix it (what you need to do to do it).
What are the factors that make up a credit history?
Your credit history is formed with your first credit . And it doesn’t matter what it was: consumer, cash, fast credit, etc. Any credit repayment information will be entered into your credit history, so it will reflect both your financial obligations that have been paid off and those that are outstanding.
Credit history consists not only of banks and financial organizations, but also of service providers. Accordingly, credit history contains various data, but they will all characterize the borrower’s solvency.
What are the financial obligations that make up a credit history:
- Consumer and short-term loans.
- Credit cards.
- Study loans.
- Car leasing.
- Mortgage loans.
- Financial commitments of various companies where you are the recipient of services and the debtor.
- Duration of the delayed maturity of a financial commitment.
Before issuing a new loan, the lender carefully examines your credit history and looks for any information that may characterize your solvency. Most often credit organizations and banks use a common database where they enter information about it or another borrower. The main rule of the credit history check: The more money you want to get on credit, the more thoroughly your financial dossier will be studied .If you want to know your credit history before going to the bank, you can do so on some websites by logging in with your personal online banking profile. This procedure can be done twice a year at no cost. This way, you will look at your financial profile with a “creditor’s eye”.
The Credit History Report will provide information on current financial obligations, on loans that have already been discharged, and on arrears (duration). Minor delays in paying bills are not recorded in your credit history , but provided they are delayed for only a few days.
The most accurate information on the credit history of any resident of Latvia can be found on the website of the Lydia Bank. To connect to this system, you will need a special reading device that can recognize the ID of the person who wants to check their financial reputation.
What can a broken credit history end with?
If the borrower is found to be in breach of his or her right to repay his or her credit obligations, or if he or she avoids repaying the loan prematurely, he or she will face a relatively severe penalty. The best way out of this situation will be to lead the unscrupulous borrower to a new loan on favorable terms. As an example, let’s look at the situation: Borrower N, with an ideal credit history, has issued a consumer loan at 16% per annum; Borrower V, which differs from Borrower N only with his damaged credit history, has applied for exactly the same loan at only 40%.
Based on these figures, it can be concluded that Borrower V will have to pay 2.5 times more interest than Borrower N. But when it comes to a relatively large loan, this difference will be a large sum of money.Worst-case scenario after your credit history was damaged – you will be denied any credit at any bank . Lenders are not interested in dealing with people who, through their behavior, have already proven to be unable to meet their financial obligations. Particular irresponsibility can be seen in the form of instant loans, which do not oblige the borrower to offer a pledge or guarantor. But how unpleasant it is when you are hoping to apply for a car loan or mortgage, but in return you get a strong denial from all creditors. And this only happens to you because, just 5 years ago, you were not serious about repaying a small quick loan, which resulted in your credit history being completely damaged.
In addition, the borrower must not forget that any outstanding loan may be subject to administrative penalties. If your creditor wins during the trial, you will not only be forced to pay back the entire debt, but will also have to pay all court costs .
How do I fix my credit history?
A broken credit history is not a shadow that will follow you through your life. After several years, information about your overdue payments or outstanding credit will be deleted, but will be replaced by newer information. Residents of the Republic of Latvia can use one of two methods to improve their credit history:
- You will need to clear any overdue payments and wait approximately 5 years. After this time, any negative information from your credit history will be deleted.
- If you do not wish to repay your debts, the negative information about you as a borrower will be deleted after 10 years. This time period must be deducted from the first overdue payment on the loan in question.
Thus, it is much easier to rectify the situation by paying off your existing debts, but treating your debt in a very responsible way for the next 5 years. Once your bad credit history is gone, you will once again have unlimited opportunities to find a new loan on the most favorable terms. Also be careful of suspicious offers. You may come across fraudulent paid services on the Internet that will offer you a way to repair your credit history for cash. It is not worth believing in such empty promises, because it is impossible! The credit history of each resident of the Republic of Latvia is supervised by law enforcement agencies, therefore, only credit organizations can make changes to this information.
It is only possible to start your financial life from scratch by waiting for a certain period of time or by restructuring (or refinancing) your remaining debt.
What are the rules to avoid damaging your credit history?
To avoid looking for ways to improve your credit history, it is enough to follow simple financial principles:
1.Borrow as much as you can!To determine what amount of credit you are capable of , you need to analyze your income. Subtract from the total amount of your monthly salary any compulsory payments you make each month: utilities, tuition, parking, purchase of products and essentials, clothing. Leave at least 1/3 of the remaining amount for unforeseen expenses. And what’s left of you will become your maximum monthly credit payment.
2. Don’t Avoid Contacting a Lender!
If your life situation has worsened and you are no longer able to repay the loan in full , first of all, hurry to your creditor to find a compromise solution.