The modern American market and the entire modern American economy would not have developed if an option had not been invented to track credit information about a borrower and, if necessary, provide it to a potential lender. Moreover, not only financial institutions or banks, but also homeowners, telephone and Internet companies and many other services where you are trying to get a service and where the owner bears material risk by giving you his property for use, can act as a landlord.
The name of this invention is credit history and credit rating completely related to it. Credit history appears with the SSN receipt – individual taxpayer number; after that, wherever you indicate this number, there is a risk that the information will go to the credit history and report. Whenever you get a job, sign a lease for housing, apply to a bank for a loan – you always indicate this number. The credit rating was invented in order to quickly and clearly demonstrate the borrower’s reliability, so to speak, his credit reputation. It was developed by a private organization FICO (Fair Isaac Corporation) and the option of its calculation remains the secret of this agency, but there is official information that affects the change in this rating.
A credit score is a number that ranges from 300 to 850 (in some agencies, from 330 to 830). However, 60% of people have ratings ranging from 650 to 800, and the national average is 723 (USA). It is common knowledge that the higher the rating, the more reliable the borrower is.
The credit rating usually rises very slowly; sometimes it takes years to pay off a loan or raise the average age of their credit cards (which significantly affects the rating).
But it spoils very quickly and for a long time – for this it is necessary to enter at least one bad report in the report and it will be stored there for years. It can be a loan request, it can be stored for two years; collection – up to 7 years; delay in payment, depending on the terms can be stored for up to 10 years; bankruptcy – up to 15 years.
The availability of such information has a very negative effect on the result when processing your loan application.
How to issue a loan with a bad credit history?
If there are serious violations of financial discipline, then they will have to be eliminated. For example, if there was a long delay, you need to repay the debt, pay interest and penalties, and then take responsibility for your obligations and make payments regularly. Within 6-8 months, if new negative facts have not appeared, it is recommended to try to take out a bad credit loan: it is likely that the borrower’s financial situation has changed and it is permissible to do business with this client.
In the event that you have a high debt load and a lot of blank loans, it makes sense to think about refinancing. This will reduce the cost of servicing loans, as well as improve terms, for example, reduce the interest rate.
If you have not previously had loans, you should ask the bank for a small amount. This will increase the chance for approval of the application, and with active and conscientious use of the loans from online lenders in the future, they, as a rule, offer to increase the limit.
When there are other disturbing facts in your credit history, such as changing addresses and phone numbers, it is better to apply for a loan at the office in person and give explanations on the situation. By removing doubts, you will increase your chances of working with the bank in the future.
As you can see, it is quite possible to issue a loan with a bad credit history or with negative reports in it. The main thing is to restore the reputation of a bona fide borrower and treat monetary obligations seriously.
Who calculates the US credit rating?
There are three main credit bureaus through which all your information flows – Experian, Equifax and TransUnion. They are the ones who compose reports for you and calculate the credit rating and, if necessary, provide both to you and to potential lenders. Since the calculation method is not disclosed, it turns out that you have, as it were, three credit ratings, one from each agency, and they can vary up to 30-50 units, which is generally significant. Therefore, before applying for a large loan, it is better to check your reports in all agencies in a couple of months and remove incorrect information if necessary.
Please note that you have the right to check the reports from each of these bureaus free of charge once a year. To do this, you need to go to the official website. When you request a report, you will not receive your rating, because this is paid information, but you can check all the information that is in the reports. And this is very important. Because, no matter how wonderful the United States is, errors happen even in credit bureaus. About 70% of the reports each year have errors that can significantly reduce the rating.
In what cases your credit history plays a significant role:
- when trying to get a good job (many employers check your credit history).
- when you sign an agreement for a certain service – internet, telephone, gas, electricity;
- when you want to rent an apartment in your name;
- when you want to buy a car on credit;
- when you want to get a credit card;
- when you want to get a mortgage for housing;
- when you open your business and rent premises;
- when you want to issue a loan for education;
- when you want to issue a cash loan;
- when you want to lower the interest rate on existing loans.
Keep in mind, the Credit Score is your credit reputation. It is very difficult and takes a long time to improve, but you can spoil it in one day. So be very careful, pay your bills on time, do not make mistakes in your credit reports, follow the advice of loan officers and remember that in the future this will bring not only convenience, but also noticeable financial benefits.