Everyone’s life may come when they need to borrow money, and borrowing doesn’t always mean asking for help from a friend – it can also be a short-term loan, such as a home or car repair. To qualify for a loan, a person must meet a number of requirements: be of appropriate age, have a regular income and have a positive credit history. But what exactly is credit history and why is it so important?
How is Credit History Made?
Credit history is an overview of all a person’s financial activities, consisting of both the amount of the financial obligation and the person’s ability to settle the obligation on time, and the individual’s discipline in paying various other bills (eg, lease, utility bill, penalty payment).
In Latvia, until the Credit Register of the Bank of Latvia was established in 2008, most of the person’s credit history contained information on arrears. The Credit Information Offices Act came into force in 2015, which has been a major step towards a more orderly lending sector. This law requires that credit information (information that describes the creditworthiness of a client or prospective client) is managed not only on a company-by-company basis, but in one place, by licensed offices, and this process facilitates the evaluation process for any lender. This encourages responsible lending as well as bona fide borrowing.
Think about your credit history in a timely manner
The credit bureau is a hub between a number of stakeholders: the individuals whose data is being collected, the various databases and registers from which the necessary information is obtained, and the users of the information – credit institutions wishing to know their client’s habits and solvency, including Rabbit. Such authority shall ensure that all personal data are collected centrally and are no longer kept in the database of a particular lender. The Credit Information Office is responsible for ensuring that all data is collected and processed in accordance with the law. This means that customer data is protected and will not be disclosed to third parties without the customer’s own written consent (which may be contained in the contract).
Thus, a positive credit history can become the cornerstone of future credit, and it is important to think about it as early as possible. The more the Credit Information Bureau improves, the more important will be the information about a person’s financial habits – paying bills, borrowing frequency, making savings, etc.
Keep in mind that debt information is kept:
- five years after the cancellation of the debt (the person repays the debt or the obligation is terminated on another legal basis);
- 10 years after the first day of delay in payment, if the person fails to pay the debt.
However, it should be noted that often lenders only evaluate a customer’s credit history over the last 6 to 12 months. Therefore, in the event of late payment, you should try to clear the debt as quickly as possible, thereby demonstrating your discipline and solvency.
Every lender, including Astro Finance, reminds their clients, “Borrow responsibly!”, Which means more than just a simple reminder. Responsible borrowing includes financial planning, the ability to assess the amount, term and necessity of a loan, and a careful look at the information included in the contract – the loan fee, interest rate, as well as the client’s rights, obligations and personal responsibility.