About bad credit history

What happens if I can’t repay a loan

If you realise you won’t be able to make a loan payment on time, contact the lender straight away and explain the situation — ideally before the payment is overdue. Most lenders are willing to look for a solution: changing the repayment schedule, temporarily reducing the payment or granting a payment holiday. This will cost far less than falling into arrears.

If payments stop, penalties are charged, and then debt collection begins — first by the lender itself, then through a debt collection agency or the courts. Information about late payments goes into your credit history and, after prolonged non-payment, onto a debtors’ register. Such records are kept for several years, even after the debt is repaid, and make it much harder to get new loans, rent a home and sometimes even sign a phone contract. So always take a sober look at your ability to repay before borrowing.

If you already have many debts and can’t keep up with them, don’t take out new loans to cover the old ones. Contact all your lenders and try to reach an agreement. Many EU countries offer free debt advice, and in extreme cases there is a personal insolvency procedure that allows debts to be settled by court order.

How to check your credit history

Credit histories are kept by credit bureaus and, in some countries, also by the central bank. In Latvia, for example, information on loans is collected by the Credit Register of the Bank of Latvia as well as private credit bureaus. You have the right to request your data and check it for errors. If you find a mistake, ask the bureau or the lender that supplied the incorrect information to correct it.

Can you get a loan with bad credit

An entry on a debtors’ register does not appear automatically: it is reported by a lender or another company when a debt remains unpaid after several reminders. For a new lender, it is a high-risk signal, so most banks and many non-bank lenders will refuse. Those still willing to consider an application usually offer a smaller amount at a considerably higher rate. In Latvia, such lenders are listed in the “Loans for people with debts” section. But before turning to them, ask yourself honestly whether you can pay: a new expensive loan on top of existing debts often only makes things worse.

Some lenders offer to combine all your debts into one loan — learn more in the article “About credits consolidation”. With bad credit, this often requires collateral, such as a flat. The term of the new loan is usually extended to lower the payment, but this increases the total interest, and if you again can’t pay, you risk losing the pledged property.

Be careful with anyone promising a loan “with no checks”, “for everyone” or “even if you’re on a debtors’ register”: they are often scammers who ask for payment upfront. Genuine lenders never take money before granting a loan.

How to improve your credit history

• Pay off existing arrears or agree a repayment plan with your lenders and stick to it strictly.
• Pay all your bills on time. Over time, a record of regular payments outweighs past problems.
• Reduce your debts and don’t take out new loans until you have dealt with the existing ones.
• Don’t submit many loan applications — frequent checks and rejections make you look riskier to lenders.
• Draw up a budget. Write down your income and expenses, see where your money goes and start setting aside a small amount for unexpected costs. Then next time you may not need to borrow at all.

Improving your credit history takes time, but every month without late payments brings you closer to better loan offers.