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What is a credit history?
A credit history is a record of all your current and past financial obligations. It contains details about individual debts, your repayment punctuality, and the length of any delays, should they have occurred.
Beyond the raw data, it also allows for predictions about your future behavior. It shows not only whether you have been responsible in repaying your debts, but also the level of risk you might pose to a bank in the future—for example, whether you have a tendency to take on multiple debts at once. A bank might worry that shortly after taking out a mortgage, you will take out other loans for appliances, car leasing, or other wants, which would effectively reduce your ability to handle an increase in installments due to a rise in WIBOR rates.
Who collects credit history?
The Credit Information Bureau (BIK), which you have likely heard of, is an organization established by the Polish Bank Association and private banks to make it easier to assess the creditworthiness of borrowers. Thanks to this shared system, all major financial institutions can exchange information very quickly. For them, it means protection against fraud, and for customers, it means a faster loan application process.
Data on all active credit obligations is sent to BIK from the moment they are granted until they are fully repaid. Further storage of this data depends on you.
If you repaid your obligation on time, its history will be moved to a statistical database and will no longer be visible to banks or credit unions. This is not ideal if you want to build a positive credit history. Therefore, you must provide consent for your data to be processed after the obligation has expired.
However, if your repayment delay exceeded 60 days and the bank informed you that it would process your data after the obligation is closed without your consent, that data will be processed for another 5 years. This is why it is worth paying off debts on time—otherwise, it will follow you for years.
What affects your credit history?
Your score is expressed on a scale from 1 to 100 points. The higher the score, the better. Here is what influences it the most:
- Repayment punctuality – By far the most important factor. Paying off debt on time automatically increases your score. If you are late with payments, it depends on how long, how often, and for what amount. A delay of a few days will have practically no impact on your score.
- Credit limit utilization – How much of your available credit you are using. Maxing out your credit card limits and account overdrafts does not show that you are good at repaying them; it only shows that you are a risky customer.
- Loan applications – How often you have applied for a loan in the last 12 months. When you apply for many loans in a short period, you come across as desperate, especially if you have received rejections.
- Experience – How long you have been using credit. The more extensive your positive history, the better.
While such scrutiny might seem overwhelming and intimidating, the BIK database is nothing to worry about. Over 90% of the data collected there represents a positive history. There is nothing to fear.
How can you easily build a positive credit history?
Follow these few very simple rules:
- Start in advance. Building a history takes at least six months, so you need to think about it before you actually need it.
- Consent to the processing of data on repaid loans. Without this, all your efforts will be in vain.
- Pay off your debts on time. Avoid delays, and definitely do not exceed 30 days.
- Choose friendly forms of debt. Buy something you need using zero-percent installments or use a credit card and stick to the repayment deadlines. There is no point in paying extra interest just to build a history.
- Use credit in moderation. First, you won't appear as a risk-taker, and second, only buy on installment plans what you truly need. Do not exceed 50% of your available limit.
- Pay off all your liabilities. Once you have improved your score, get rid of your debt, otherwise you are lowering your creditworthiness.
Credit history and mortgage loans
Does credit history really have as much of an impact on a mortgage as you have read in hundreds of articles on industry websites? No, it does not.
Even a lack of credit history will not deprive you of the chance to finance the purchase of your dream property, and a good history will not improve the offer you receive.
So why was this material created at all? Because a bad history can really hurt you. While it won't increase your interest rate or other fees, if a bank is hesitant about what decision to make, it could result in a loan denial. If your creditworthiness is on the edge and you haven't had a great track record with timely payments in the past, not every bank will want to take the risk.
Don't worry too much about building a credit history; the most important thing is not to have a negative one. And if you have stumbled in the past, if you have enough time, you can still improve your score, which is exactly why this material was created. Creditworthiness is much more important than history, and I will explain that in the next article.
