Credit history is information that characterizes the borrower. Financial institutions use it to find out what loans and where the person has received, whether these loans have been repaid on time or have not yet been paid, etc. There are many beliefs about credit histories. In the article, we will consider the common ones and figure out which of this is a myth and which is true.
“Payday loans hurt my credit history”
Credit history records not only bank loans but also loans from microfinance institutions. Banks react to the presence of payday loans in your credit report in different ways. For some banks, this is a negative factor. But you will not be declined for a loan only because of this. If the borrower meets the requirements of the bank in terms of other parameters, the loan will be approved.
Another myth is associated with microfinance institutions: if the credit history is already bad, a payday loan paid without delays can save the situation. Indeed, if the bank no longer approves you for a loan due to your bad credit, you can try to take a short-term payday loan and repay it on schedule. This will improve your credit score. But before taking a new loan, we recommend that you repay the old debts. This will also improve your credit.
“I will not be approved for a loan if I have no credit”
Credit history is considered clean if the borrower did not apply for loans and, accordingly, did not receive them. Some banks regard the lack of credit history as an increased risk. It is unclear whether the borrower is responsible or not. But for many lenders, no credit is not an obstacle to loan issuance.
If the bank rejects your application for unknown reasons, you can fix your credit history. To do this, take out a small payday loan and pay it off on time.
The bank has the right to decline you for a loan, even if you have a credit history but it has been updated for a long time. Let’s say the last time you took out a loan was 6-8 years ago. In this case, the borrower’s solvency is difficult to assess.
“Early loan repayment hurts my credit score”
A bank loan can be repaid ahead of schedule. On the one hand, early repayment characterizes the borrower positively because the financial situation made it possible to pay off the debt faster than the schedule required. But some banks see it negatively. The fact is that the lender expects to earn money on the client – interest. If the loan is repaid ahead of schedule, the bank does not receive the desired income from such a borrower. Therefore, if there are several marks on early loan repayment in your credit report, some banks may reject your loan application. But each case is different.
“Debts for housing and communal services affect credit history”
If the number of unpaid utility bills has reached an impressive size and has already been transferred to bailiffs, this will affect your credit history. But the management companies are not obliged to transfer such information to the credit bureau. Therefore, not every debt for housing and communal services shows up on credit reports.
“A large number of loan applications is suspicious for banks”
Credit history records not only received loans but also applications. Every time the borrower applies to the bank with a request to provide a loan, the information goes to the credit history. If the requests go one after another, the bank will interpret it as follows: the client has no money, he or she is in a difficult financial situation and is desperately trying to get money. Not every credit institution will want to deal with such a borrower. It is especially bad if requests are rejected.
However, each bank has an individual attitude to a large number of loan requests. This factor may not affect the lender’s decision. The main thing is that the borrower has no unpaid loans.
“Frequent change of data affects the ability to get a loan”
In addition to information about loans, credit bureaus contain information about the borrower: address, phone number, ID. When this information changes frequently, it is suspicious for banks. It will be difficult to find a borrower who constantly changes place of residence. In addition, fraudsters act in this way: they issue new SIM cards for each loan and then throw them away so that the collectors do not call. This is a risk for the lender, so frequent changes in data can affect the lender’s decision.
“One small late payment will affect your credit history”
The easiest way to ruin your credit history is to take out a loan and not repay it. Banks report information on delayed payments to the credit bureau. Even small delays in payment play a negative role. The credit organization sees that the borrower is undisciplined, forgets to make payments on time, and is frivolous about obligations. Most likely, the lender will not want to do business with such a person.
Sometimes even a 1-3 day delay is critical for the bank – the lender simply will not approve your application. Therefore, we recommend that you set a reminder of the next payment and make monthly payments 2-3 days before the due date.
“Bad credit affects other areas of life”
Bad credit history affects not only the likelihood of being approved for a loan but also other areas of the borrower’s life. For example, there may be difficulties in finding a job. Some employers check credit histories of job seekers. True, for this, the employer is obliged to ask consent. This is often practiced when hiring for financially responsible and managerial positions.
Insurers also look at credit histories. Unscrupulous borrowers are sometimes denied insurance or offered an expensive policy.
“My credit history is available only to those banks where I am listed as a client”
The information in the credit bureau is available to those banks to which the borrower has given such consent. Usually, consent is requested at any contact with a credit institution – even when opening debit products. In this case, it is not necessary for the person to be a current client of the bank.
Do not forget that obtaining information from the credit bureau is also available to the borrower.
“Credit history has a limitation period”
Banks pay attention to loans in recent years, but this does not mean that old loans are not interesting to anyone. Information about them is stored in the credit bureau. Even a 5-year delay ago affects the likelihood of being accepted for a loan.
Credit bureaus can delete a credit history, but only if nothing in it (including information about the borrower) has not changed for 6 years. This rarely happens.
“New loans improve credit history, even if I haven’t paid my previous loans”
There is a misconception that it is not necessary to pay off delinquencies on old loans: it is enough to take out a new loan for your credit history to improve. This is not true. For the bank, the priority is not the number of loans issued, but the number of delinquencies. Therefore, it is worth paying off previously taken loans before applying for a new one.
“If I close delayed loans, they will not be reflected in my credit history”
Information about delays and loans does not disappear anywhere. Violations of the payment schedule show up in your credit report. When a borrower pays off an overdue debt, this is also recorded in the report. You’d better close delayed loans as early as possible.
“Not every loan shows up on credit report”
It is a myth. Officially operating banks and microfinance institutions are obliged to transfer data on received requests, issued loans and delays in payment to the credit bureau. If the loan does not show up on the credit report, it is most likely a technical error.
“Each bank has lists of good and bad borrowers”
No such lists are kept officially since the borrower can correct and improve the credit history at any time. In addition, banks are also changing the criteria for selecting clients. But credit institutions have blacklists, which include unscrupulous borrowers. Such people get rejected for loans.
“I can pay someone to fix my credit history”
Is it possible to correct your credit history by contacting the credit bureau directly? Yes, but only if a mistake is made in the entries. It will not be possible to remove the information in your credit report.
Please note: in 2020-2021, there appeared a lot of scammers who offer to fix the borrower’s credit history for a fee. Never use such services.
