Credit ratings are relative, so it is important to take into account the specifics of a country, enterprise, industry. Low credit ratings, of course, are undesirable, because they indicate a high probability of default. In this article we will help you understand how to rebuild credit easily.
Any market participant can develop their own credit rating system. Moreover, it is desirable for each bank to have its own internal rating of borrowers.
How long does it take to rebuild credit score?
A Credit Score is the number of points calculated on the basis of the credit history, as well as a number of other indicators that directly or indirectly characterize its payment discipline and solvency in general. The formula for calculating the credit rating was not disclosed. However, Bonsai Finance knowns what exactly affects the improvement or the deterioration of this indicator:
- repayment of delinquencies increases the borrower’s credit score;
- obtaining new loans temporarily lowers the borrower rating;
- timely or early repayment of any loan increases the borrower’s rating;
- each delay in credit payments lowers the score of the borrower;
- negative episodes of the credit history decrease their influence on the credit rating over time – the longer the period has passed since the delay, the less important it is now;
- delays for more than 90 days, even after their full repayment, will always lower the borrower’s credit rating in the future.
If you actively use loans, then your financial statistics accumulate, and the credit rating automatically increases – with each timely repaid loan or monthly payment.
In any case, to guarantee a quick increase of your credit score, you need:
- Pay off all arrears on loans and borrowings, if any – in this way, you will confirm your payment discipline and reliability.
- Fully repay all current loans or at least some of them – this will be a signal that you are ahead of the schedule of mandatory payments, and can cope with a more significant credit load.
How to rise in the creditor’s esteem
- Check your credit history for errors. Analyze your report not only on the facts of late payments but also on the availability of evidence of their ownership to you. If you cannot provide such information, you have the right to remove this data from your credit history. Examine your credit report in detail for any other obvious errors.
- Get a credit card if you don’t have one yet (in such a situation, your credit score will be 0). Credit institutions do not have information with which they could make an assessment. The status of your credit score in this situation is not defined.
- Use cash instead of a credit card. If you do not use a credit card very often, then it will be easier for you to pay interest and basic debt. Your credit rating will increase as debt decreases, and interest is paid off on time.
- Do not withdraw borrowed funds over 10% of the limit on a credit card. This should be your target debt level. Also, you can increase the limit itself. To do this, you need to apply for an increase in the credit limit. This option is available for people with an average credit rating and higher. Others should be wary that the rating will fall even lower.
- Restructure the debt. You can have several credit cards and debt on each of them. The closer you get to the limit set on each credit card, the more it will negatively affect your credit rating.
- Transfer debt from one card to another. If one card has a large limit and another has a lot of debt, consider moving part of the debt from one card to another. This can help balance the use of credit and rebuild credit.
- Take a small loan. Even taking and repaying a small loan amount can positively affect your credit rating. Get a reasonable loan if you know for sure that you can repay it (10% of your rating is the number of available loans and credit accounts).
Keep track of debt. Your credit score drops with each late payment if the delay is 30 days, and again on the 90th day of the delay. If you have debt, find a way to pay it back. Remember that 35% of the credit rating is determined by the payment history (whether you paid your bills on time).
What leads to a drop in credit score?
Make sure all documents are safe (credit card reports, payment receipts, etc.). All this can help you analyze the state of your financial affairs to rebuild credit and understand where you made a mistake, as well as serve as evidence of an error in your credit report.
Keep track of your monthly expenses. Thus, you can pay off any existing debt and one step closer to improving your credit rating. Try not to spend the entire limit on your credit cards. It is better to use no more than half the available amount from two cards than to completely exhaust the limit on one.
A decrease in the credit score for reasons beyond control. How to challenge the downgrade and rebuild credit?
How to fix a credit score? First of all, you should understand why it was generally lowered. Actual options:
- Fraudsters have issued a loan or microloan in your name. If you get a call from a bank or credit institution and are informed about a loan that you did not receive, do not hang up. To find out about the availability of other people’s loans in your own name allows you to request a credit history. Necessary actions: appeal to the creditor with a claim. Your case will be handled by the security personnel of the institution. If information about your innocence is confirmed, negative data from the credit history will be deleted.
- A technical error on the part of a software or a person. Information on loans may be incorrectly entered into the database of a monetary company. If you are confident that your reputation as a borrower is positive, but is faced with rejections from banks and microloan providers, request a credit history. If you find incorrect data, please ask to delete them.
- The credit history contains information not only about direct loans but also about how often the borrower applies for financial support. If you do not want to continue to think about how to improve your credit rating, do not submit more than 3 loan requests per month. Banks can “close their eyes” only to requests for car loans and mortgages.
- Constant appeals to microloan providers. Some microfinance institutions offer programs to help you understand simple things like how to rebuild credit. Also, part of such companies transfers information on successfully paid microloans. Improving your credit history with microloans in Bonsai Finance is a fairly common practice. And yet, it’s not worth every month to take a couple or two thousand hryvnias to pay. After all, this will indicate that the finances of your main source of income sorely lack even for living or that you have problems with planning expenses. Do not take small personal loans more than 2 times a year, and always pay them on time.
- Delays in monthly installments. Most often, credit users need to correct their credit history due to previous loan delinquencies. If your delay is open, contacting the bank is almost pointless. Most institutions, in such cases, fail automatically. The significance and duration of your violation. If a few years ago, you made a weekly or monthly delay in payment, there is nothing to worry about. But if there were a lot of delays and/or they were long, you need to “block” them now – with new and timely paid loans.
Keep in mind that many factors are important for a bank, in addition to a credit rating:
- Availability of valuable property.
- The size of wages and the dynamics of its growth.
- History of relations with employers (number of jobs, length of stay at one place of employment, etc.).
- Education and marital status (having a spouse with a good job is always a plus, a small child is already a minus).
- Age (in comparatively worse conditions, pensioners and youth).
In addition, you can try to make a deposit at the bank and regularly replenish it. Another good option is to transfer your salary to a card of a bank that interests you. Strict financial discipline allows you to maintain a good reputation. Avoid delinquencies and do not create debts – neither to credit companies nor to other commercial and state organizations.
High loan utilization
The loan utilization ratio is the ratio between the credit limit and the current balance on this loan account. Most often, a credit card is taken as an example. The ratio is measured as a percentage and means how much you owe from the whole possible amount of debt.
Regardless of the specific reasons for the customer having a high loan utilization rate, one thing is certain: according to statistics, such borrowers are closer to the delay than others. Of course, such statistics make them less attractive to banks and credit organizations.
Default loans or fees
One of the main mistakes of many borrowers is that they think that you just need to pay the bills on time, and it is enough for nice credit history. Do not get it wrong, this is indeed the most important criterion in evaluating a client, but by no means the only one. About two-thirds of the scoring factors have nothing to do with timely payments. As a result, you can never make delays and at the same time, have far from the best credit history.
Many people mistakenly believe that repaying loans and microloans ahead of schedule is the right decision. But this is not true. Only regular payments within the terms specified in the contract show you as a respectable borrower with excellent solvency, according to Bonsai Finance. Does the bank want to cooperate with the one who constantly takes loans for years and repays them after several weeks or months, thereby depriving the lender of the due income? Of course not.
Collection of loans
Compulsory debt collection is carried out in the order of action and enforcement proceedings. Each stage has its own characteristics and takes a certain time. The more difficult the situation with repayment of the debt, the more time it will take to resolve it.
Debt collection in the course of action proceedings, followed by enforcement proceedings, allows the collection of debt even if the debtor refuses to pay it. The debt repayment procedure is carried out in accordance with a court decision. The necessary funds, taking into account penalties and penalties for using “other people’s” funds, are debited from the accounts of the debtor, and in the absence or shortage of funds, the debtor is enforced. In addition, the funds spent by the creditor to conduct the procedure, including the paid court fee, are fully covered by the debtor.
The procedure for collecting debt in court:
- Preparation of documents confirming the presence of credit debt (loan agreement, statement of account, and/or calculation of debt, application for the issue of cash, etc.).
- Submission of a claim to the debtor if the contract or law provides for a claim procedure.
- Preparation of a statement of claim for debt collection and its submission to the court.
- Participation in court hearings.
- Making a court decision in favor of the bank.
Thus, the essence of the judicial stage of debt collection comes down to confirming the debtor’s obligation to repay the debt and to achieve its formal consolidation in the form of a court decision.
The most common and effective way of securing a claim is by the court seizing the property of the debtor, which is expressed as the temporary deprivation of the debtor the right to dispose of his property. The decision to seize the debtor’s property, if there are legal grounds, is taken by the court based on the results of consideration of the creditor’s application for securing the claim, in which the circumstances should be set out with which the applicant justifies the need for such an arrest. The application must also comply with other requirements provided for by the procedural law. The court determines the degree of justification and proportionality of the debt to the seizure of the property of the debtor in each case.
Bankruptcy is the ability to discharge debts through a court legally. The bankruptcy procedure for individuals is regulated by the bankruptcy law. The law applies to almost all types of debts, including mortgage, personal loans, car loans, etc.
You can declare bankruptcy if you anticipate that you cannot pay off the debts because you become insolvent: your property and income will not be enough to satisfy the claims of creditors.
How to improve your history and how to rebuild credit? Remember a few key points:
- The credit history reflects not only your history of relations with lenders, but also unpaid utility bills, unpaid tax contributions, alimony and fines (in the event that the case for their collection reached the court).
- A delay of one to two days is usually not listed in the reports and is considered to be “technical” by the lenders themselves. But if an employee of a financial organization contacted you because of it, don’t refuse to communicate with him and be polite in the conversation. Otherwise, the bank will nevertheless send a negative report to the Bureau, and the rating will go down.
Important! Each lender has ideas about the period of gross violation of the contract. For someone, it is 60-90 days, for someone – a little more than a month. Some organizations start calling and writing to the debtor the very next day after the latter was supposed to pay off the debt but did not.
Small commercial banking structures and beginning MFIs most often agree to cooperate with unreliable borrowers. Those organizations that are forced to develop a clientele by any means, including bearing increased risks. Get ready for the fact that a credit will be offered to you on an individual and far from the most favorable conditions.
Remember that the situation can always be corrected. If your credit history is as bad as it gets and you are in the black lists, Bonsai Finance can help you, which is ready to solve all your problems and help improve your credit rating. Contact us, and you will never regret it!