What is bad credit history?
Credit history is a profile where a person’s debt obligations are indicated: loans, credit, guarantees. You can also see how he performs them.
For example, some person took out a loan. The bank informs the credit bureau of any changes in the loan agreement. The borrower received the funds, made another payment, closed the debt – the information goes to the credit bureau. The bureau receives information from the bank and adds it to the credit history.
He does not return the money. As a result, information about the delay appears in his credit score. He goes to another bank to borrow more there. Another bank checks the credit history, sees the delay, and refuses him. Credit bureau reports: “A client came, but we disapproved of him.” Information about the loan application is also entered into his credit history.
This person does not despair and goes to the third bank, which is also not happy to issue him a loan. This is because this bank asked for a credit score and understood he has not only an overdue loan but also a refusal on the application.
As a result, he gets rejection every time due to bad credit history. Moreover, it gets worse with each month of delay and new refusal. This is how it works.
It is up to each lender to decide how to evaluate the credit score. Banks place higher demands on borrowers than microfinance institutions. But even among the banks, there are no common points: one will approve the application, and the other will refuse in exactly the same terms.
MFI: what is and how it works?
Consequences. It is difficult for a person with a negative credit score to get a loan, an installment loan, or take out a mortgage. If your score is very low, then even MFIs will refuse. Some lenders do not refuse but offer loans at unfavorable terms, for example, at an inflated interest rate or with the requirement to provide co-borrowers, guarantors, to ensure some property as collateral.
Employment difficulties may arise – some employers check applicants’ credit history. Such checks are permitted only with the written applicant’s consent. If there are problems in credit history, they can choose another candidate.
How is an employer screening job seekers prior to employment?
Insurance companies can also be guided by credit score when applying for comprehensive insurance. If a person is careful with loans, then he is disciplined on the road, as well. Therefore, a conscientious borrower can be given a discount, and a malicious defaulter can be denied insurance or offered a policy at an inflated price.
The storage period for information in the credit bureau is 10 years from the date of the last change. The Bureau will delete a credit history if nothing happens to it for a decade. Any new loan, application, payment, changes in personal data will renew the term again.
It turns out that the financial faults of the past can haunt the borrower all his life. But the principle is the following: the older the information, the less attention is paid to it. First of all, lenders look at the latest data – for the last 5 years or even less.