Each overdue loan payment reduces the quality of the credit history. The more delinquencies and the longer their term, the less likely they are to get a loan. Below we will tell you how not to tarnish the credit history even in the presence of bad debts and how to act if delays did happen.
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In order not to spoil the credit history, contact the lender as soon as there is a chance to delay the payment. The reasons may be different: they got sick, lost their jobs, their salary decreased. If you warn the bank about possible problems, you can restructure the loan – get a “credit vacation”.
If there are prerequisites for late payment:
Document the reasons: job change, reduction of salary, illness.
Provide proof of loss of ability to work or care for family members.
Try to discuss the terms of refinancing with the bank – to extend the loan repayment period, to reduce the monthly payments.
Ask for a credit break.
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Banks are willing to negotiate, because they do not need distressed assets and borrowers. If you simply stop paying and answering the bank’s calls, the debt will go badly, the bank will go to court or sell the debt to collectors. The court may deprive you of property, and collectors will poison the life of you and your loved ones.
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Delay in the past does not affect banking decisions if:
overdue loans are closed,
more than two years have passed since the delay,
You close new loans without delinquency.
The longer the delay, the longer it takes to fix it. “Technical” delay to a month does not matter. Three to four months of timely payments, the absence of similar arrears in the future, and you can safely apply for a new loan. The delay of 30+ days requires six months of accurate payments. 60+ days of one year and so on.
For most banks, the most important information in your credit history is how you paid on loans in the last 2-3 years.
Another thing with defaults, legal penalties and bankruptcies. These procedures do not have a “statute of limitations” and extremely negatively affect the credit reputation.
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The quality of credit history may decrease due to the fault of the bank or credit bureau . It happens that the bank transmits data to the credit bureau with a delay or with errors. It happens that due to a technical failure, the data of another problem borrower get into your credit history.
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If the mistake was made in the credit bureau, it is easy to fix. You write a statement and attach evidence to it that the information in your report is incorrect. Ask the bank to provide you with a printout with a payment schedule or a certificate of no delays.
If the problem has arisen on the side of the bank, it is more difficult to correct the credit history. For example, in order to correct a mistakenly recorded delay, it is necessary to prove to the bank the timeliness of payments using checks. Therefore, for safety keep bills and bank documents. It is these papers that will allow you to prove the correctness and return the status of a reliable borrower.
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If the delay is due to your fault and the banks are denied new loans, loans will help. Microcredit organizations, unlike banks, have low requirements for borrowers. The main stop factor is active overdue. If you do not have active delinquencies, come to the loan company.
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Microloans will help you restore credit reputation. How can I get bad credit loans near me (in Georgia) ? Take and pay a second microloan. Then the third. So in your credit history there are marks of three fresh, regularly paid loans. For the bank, this means that you have corrected credit behavior, delays are in the past. Some loan companies even offer the “Improving Credit History” special service.
Banks have similar services. For example, Sovcombank offers the service “Credit Doctor”.
If you do not allow delinquency, then after 2-3 years, you can regain the confidence of banks and get a car loan or mortgage.
To track the improvement in your credit history, check your scoring score every 1-2 months.
Debt redemption for 20%
When overdue payments exceed 12 months, the bank marks such a debt as hopeless. Often, banks sell bad debts to collectors for 1-2% of the debt.
Along with collectors, there are intermediary organizations that buy out debts for 15% of the debt. It is more profitable for banks to work with such intermediaries than with collectors. For the borrower, the scheme looks like this:
Suppose you owe a bank 10,000 dollars. The intermediary buys your debt from the bank for 15,000 dollars and sells you for 20,000 dollars. The winner is everything: the bank realizes the problem debt at a price that is more profitable than it would have received from the collectors, and even more so if it simply brought it at a loss. The mediator receives 5,000 dollars. The borrower gets rid of the debt for 20% of its real value and closes the problem loan, with the possibility of further rehabilitation of its reputation as a borrower.
If financial difficulties are identified in the near future, notify the lender and find a solution together.
If less than two years have passed since the last delay, do not rush to contact the bank for a new loan.
Poor credit history is easiest to fix with microloans.
Try to buy out your own debts with a delay of more than a year for 20-30% with the help of relevant companies.