A good credit history can save you money in the future, a bad one – on the contrary. KI of each person is saved for decades, and the information in it can be updated even if you do not have an open loan or loan. This document reflects the financial habits of a citizen and shows lenders how credible a potential borrower is. Therefore, it is very important to keep track of your history and know what forms the final score.
One of the main mistakes of many borrowers is that they think that you just have to pay bills on time and that will be enough for a good credit history. Do not get it wrong, this is really the most important criterion in assessing the client, but far from the only one. About two-thirds of the factors in scoring have nothing to do with timely payments. As a result, you can never make a delay and at the same time have not the best credit history.
There are several articles in our blog about what a credit history consists of and what factors can influence it. Today we want to tell about another interesting point that some banks can take into account when scoring a client.
Credit utilization rate
This is the ratio between your credit limit and the balance in this credit account. The most common example is a credit card. The ratio is measured in percent and means how much you owe from the total possible amount of debt. At the same time, the amounts of several cards can be summed up for the calculation.
For example, if you borrowed 20,000 rubles, and the maximum amount on the card is 40,000 rubles, then your credit utilization rate is 50%. That is, you used only half of what the bank approved. Another (or the same) bank, when it checks this parameter, will increase the assessment of your credit history in this case.
Why do banks come up with new and new scoring criteria?
This is done in order to minimize their risks by issuing a regular loan. Specialists develop sophisticated mathematical algorithms that calculate the total credit score of a potential borrower. People who use most of their credit limits on their credit cards pose a greater risk to lenders. A high percentage of using your credit may mean that a consumer has lost or reduced his income. It may also indicate a lack of discipline or problems of cost overruns.
Regardless of the specific reasons for the client having a high credit utilization rate, one thing is certain: according to statistics, such borrowers are more inclined to overdue. Of course, such statistics make them less attractive to banks and MFIs.
Paying a loan once a month may not be enough
The credit utilization rate, like the credit history in general, is a “snapshot” for a specific period of time. And the data affecting the score are sent, as a rule, once a month, by each bank at different times. Do you think paying off your credit card once a month is enough to protect your scoring? If you think that yes, you may have an unpleasant surprise.
Even when closing the account completely, the bank may send data after a while. For example, if you spent 35,000 rubles a month on a credit card of 40,000 and paid in full before the loan expiration date, but after the bank sent the data to the bureau, your debt will still be considered to be 35,000 rubles, which is 87 5% use of the loan. Although in fact, in fact, 0%. And this data will remain in your scoring for another month until the bank sends the information again.
To avoid this situation, many borrowers work out the habit of paying on a loan every time such an opportunity arises. Thus, at whatever point the bank sends the data, you will be as ready as possible for this.