Juta Kučiauskienė, operations manager at data analytics company Scorify, points out that when assessing people's ability to borrow, various data that make up each of our credit histories are analyzed.
"Your credit history is the history of your financial life. How you take on financial obligations, how you manage to repay them, whether you repay them on time, and so on. By summarizing this financial information, we can give each person a credit rating. Simply put, I would compare credit history to the average grades written in schools at the end of a semester. That average is the credit rating," says J. Kučiauskienė on the “Inbank kalba” podcast.
Vaidotas Rimeikis, head of Inbank's Lithuanian branch, emphasizes that when assessing a customer's creditworthiness, it is not only their credit rating that is important, but also their income and its stability.
"When assessing a customer's borrowing capacity, we must first ensure that they have a sustainable income, i.e., a stable salary for at least four months. If a customer does not have a permanent job or their income is not stable, this may negatively affect their borrowing capacity. This does not mean that people who are self-employed or engaged in other forms of economic activity, where income often fluctuates, will not be able to borrow. The bank may simply ask for additional information to be used in the credit assessment," says V. Rimeikis.
According to J. Kučiauskienė, a credit rating can also be calculated for people who have not had any financial obligations to date. She says that credit history can be influenced by factors that may seem surprising at first glance, such as frequent credit card changes.
It is important to pay bills on time
J. Kučiauskienė advises that before borrowing, you should carefully consider whether the planned new financial commitment is really necessary. If, after weighing everything up, you decide to borrow, then you must ensure that your financial obligations are met on time—every delay affects your credit history. Even if these are seemingly small and minor purchases that are incorrectly calculated and then paid back late, if they become irresponsible financial decisions, they can worsen a person's credit history.
Two things are particularly important for your credit rating: how you meet your current obligations and whether you have had any delays in repaying debts in the past. In general, a combination of indicators is assessed. As a result, even people with lower incomes may have a better rating than those who earn more. For example, a person may earn 7-8 thousand per month, but fail to pay their bills on time or spend too much. Therefore, the ratio between income and liabilities is particularly important," says J. Kučiauskienė.
The shortest way to a damaged credit history is to be late in paying bills. According to the expert speaking on the “Inbank kalba” podcast, if a customer is more than three months late in paying not only their existing debts but also their bills, such as for utilities, they will usually not be granted credit, and no loans are issued to them.
"This information about debts reaches credit bureaus, we see that the customer is in debt, so we basically no longer have a reason to calculate whether the customer may become indebted—it has already happened, they have shown that they cannot fulfill any obligations," says a representative of Scorify, describing the specifics of their work.
Financial information is stored for 10 years
According to J. Kučiauskienė, personal information about financial obligations is stored for ten years after the contract is paid out, so creditworthiness and risk assessment, including a poor credit rating, may also affect the credit terms offered.
Does old debt eliminate the possibility of borrowing? V. Rimeikis emphasizes that very old debts are less significant than whether the customer currently has any debts.
"Current obligations are very important for creditworthiness and risk assessment, and the customer's past debts are also taken into account. New debts are usually more important than those incurred in the past. Furthermore, if you check your credit rating at a credit bureau and find that it is not the highest, you should not immediately assume that you will not be granted credit. Banks use their own internal assessment models, which do not necessarily coincide with the calculations of credit bureaus, so it is best to assess your actual borrowing options when applying for a specific loan," says the head of Inbank's Lithuanian branch.
More information about what you need to know about your credit history is available in the latest podcast, “Inbank kalba”.
