Most people who decide to incur a specific financial commitment (financial loan, loan, installment purchase) must first undergo a verification process regarding the data contained in the credit checker and business information bureaus. It’s about checking the so-called credit history, which is verified by a significant number of institutions offering financial services. What is it and what can it affect?
A positive credit history is extremely important when we want to make a specific financial commitment – whether it is a bank (e.g. a mortgage) or a non-bank institution. If we haven’t had any problems paying off your previous commitments so far (or just didn’t make them), we’ll probably go through the required verification process without any problems.
What is credit history?
A credit history is nothing more than a record of the previous actions of a potential loan – or borrower. what does it mean? Each time we make a financial commitment, it is entered into the credit checker, i.e. the Credit Information Bureau. It is an institution that – as you can guess – deals with monitoring information on loans and credits taken. Banks and financial institutions have access to the data collected there.
Each person who has already made financial commitments is given a special rating – so-called scoring, i.e. a special measurement system. Scoring consists in determining the customer’s creditworthiness. The system is based on comparing the profile of a given person with the profile of clients who have already incurred predetermined financial obligations. The subject of the comparison is the timely repayment of credits or loans. It comes down to a simple fact – the more obligations repaid on time, the higher the score and thus the higher the credit checker rating.
It is worth remembering that the credit history assessment is influenced not only by the timeliness of paying off the debt, but also by the frequency of subsequent financial obligations.
Good or negative credit history?
You can often find terms such as “good” or “bad” credit history. On the other hand, the phrase “zero credit history” is used less frequently. We can speak of a good credit history at the moment when the credit checker registers contain information about the Customer’s previous obligations – of course, repaid on time. On the other hand, we have a bad credit history when the loans or credits taken were repaid late (or are still being repaid, despite exceeding the set deadline).
What is behind the term “zero credit history” then? This means that the customer has not entered into any financial commitments so far. While in the case of good and bad credit history, the situation for a bank or financial institution is simple (the customer is credible or not), zero credit history is not a clue. This, in turn, means that it is difficult to say whether a given customer will pay the liability back on time and whether it is worth risking a loan or credit.
What to do to have a good credit history?
The first condition for having a good credit history is of course timely repayment. It is worth noting, however, that in order for this to be possible, it is first necessary … to incur a liability, i.e. to take out a loan or credit. Otherwise, our credit history is simply referred to as “zero”.
Having a good credit history is especially important when you want to make a bigger liability, such as a mortgage. For this reason, we should not be afraid to take out small financial loans – using this service will not only help you finance additional expenses, but also help build a favorable credit history.
Can you improve your credit history?
Of course, although it should be remembered that this is not always easy. This applies especially to people in whom the situation with late payment was repeated at least several times. Of course, the credit history does not improve as a result of a change or erasure of the data contained in the credit checker register (this is simply impossible). It is more about timeliness in paying off subsequent liabilities. This in turn means that in this case it is worth making small commitments (such as a short-term loan) to prove your creditworthiness. Time is also an important factor here – if the incident related to late repayment of a loan or credit took place a long time ago, the bank or financial institution will be more willing to accept the application submitted by the customer.