A credit report seeks to provide an objective basis for determining someone’s eligibility for credit. An independent entity i.e. a credit bureau collects and discloses the credit information of an individual by way of a credit report. This credit information shows how they would have serviced their debts in the past to provide an unbiased gauge of their credit risk and therefore their likelihood of meeting the credit requirements in the request to be extended credit. This tool seeks to circumvent heavy reliance on personal interviews and other means in the evaluation of applications for credit by which subjective factors such as race and gender may come into play.
However, research in the United States is showing that within the very use of credit information there appears to, unfortunately, be a deep-rooted, underlying presence of discrimination stemming from the historical injustices and racial economic divide and disadvantage of those of African descent. Such has the potential to allow the issue of a general lack of financial access in the African American community to persist to this day thereby perpetuating the historical injustices and disadvantages suffered by those in that community.
Thus, in the American context, as they go back to review the history of credit information, they also take into account and incorporate the past historical disparities stemming from race and that lack of it by a racial group and thereby leading to the further restriction of it.
Research in the United States of America highlights that 1 in 3 Black households did not have enough credit information to generate a credit score (known as having a 'thin' credit file), while only 18% of White households had a thin file. With lower or a general lack of credit information such persons may have no choice but to access credit under extreme measures with higher interest rates and stricter terms thereby placing harder burdens in their access to finance and their ability to repay under such harsh stipulations.
A possible solution raised as part of the recent presidential campaign by the Democrats is the proposal of a new federally backed credit bureau premises of algorithms that included non-traditional sources of credit data such as rental history and utility bills. The use of such information may pave the way for those within the African American community to build a credit history and have credit information available to be in a better position to access finance through the traditional credit institutions.
We are aware that as part of any application for the extension of credit such as a loan or the subscription to a new utility service, the institution may conduct a credit check to determine our eligibility and credit risk. However, when applying for a job, being promoted, or seeking to serve on a board, we may be presented with the request to conduct a credit check or provide a credit report. In such an instance, there is not the typical request for extension of credit or subscription to a new service and, therefore, we may question the basis under which the employer or corporation will be seeking to investigate our credit.
There has been an increasing desire from employers and corporations, as part of their hiring or promotion process, to have a review of a credit report to determine whether to appoint board members or hire employees. Credit assessments are performed in addition to the other background checks done.
Credit checks will usually be required for posts involving high financial responsibility, access to funds, security or access to confidential or sensitive information. In those situations, there will be a concern of the risk of financial impropriety, bribery or other fraudulent activity which the companies are trying to avoid by assessing the likelihood of the person becoming susceptible to such. It is believed that credit checks can therefore mitigate against such risk of theft or embezzlement by assessing the person's financial stability and debt evidenced through their credit report. It is taken that a person in financial distress may be more susceptible to misappropriation of funds and therefore when such signs are evidenced by the credit report of a potential hiree, that person may not be considered the best fit for the company.
Credit checks would usually require consent and therefore that request to conduct a credit check can be met with a refusal, but that refusal may also result in a denial of the job. Hence, the refusal of a request to conduct a credit check may be tough especially since credit checks are usually conducted after successful interviews. This, therefore, means that the candidate is usually shortlisted to be hired. Hence, if you know you are seeking a security post or where managing finances and/or having access to funds are a key component of the job description, consider being proactive and review your credit report ahead of time and correct any inaccurate information that may be present.
A credit bureau is an information business. It seeks to bridge the gap between the creditor and the consumer to aid in the financial transaction they will be seeking to engage in. We all know the problems that may arise when there is a lack of information. There is usually confusion, misperceptions, misunderstanding, bad decisions, and regret. To avoid such, credit bureaus or credit reporting agencies in their intermediary role collect information pertaining to the identity of the data subjects and the corresponding account information and in particular their payment history from various creditors. The information collected is compiled and consolidated in the format of a credit report or credit score to be used by authorized creditors or the consumer. Thus, a credit bureau serves as a record keeper organizing and noting the credit history of the data subject as furnished by the creditor. However, a credit bureau does not make its own determination as to the creditworthiness of a data subject but rather the creditworthiness is merely reflected based on the information provided by creditors.
This information reflects the credit history of the data subject thereby showing how the data subject paid or is currently paying their debts or services. This historical information in turn is used by creditors in their analysis of the prospective client viability to qualify for the loan or service being sought. With such information at hand, a creditor is better poised to make well-informed decisions and avoid the misperceptions that arise in the absence of information. The credit report aids in the evaluation of any potential risks and is a major factor in determining whether to extend credit or engage in a credit transaction. The credit history serves as a predictor of the person's likelihood to repay the debt or make the payments. It can also be used to gauge whether a person may have the means to repay the debt or whether they are already heavily indebted. The consumer who has a good history of paying debts can use a credit report to avoid some of the stringent terms that can be imposed by institutions as a means of mitigating against any risks of defaulting such as paying a high deposit or provide some form of collateral. Not only is the information used in instances where a credit transaction is occurring but it may also be used by employers as a means of screening a prospective employee to determine the suitability to be entrusted in what is usually a post which requires the upmost financial propriety.
As said by Williams Pollard, information is a source of learning. But unless it is organised, processed and available to the right people in a format for decision making, it is a burden, not a benefit. Credit bureaus undertake the burden of information to ensure that is it a benefit for all and make credit work for you!
In the United States, the Coronavirus Aid, Relief, and Economic Security Act (CARES) was proclaimed on March 27th, 2020. Whilst it may be regarded generally as the stimulus bill as it implements a number of financial relief measures for Americans impacted by the COVID-19 outbreak, it also plays a significant role in guiding those within the credit reporting industry as to how to deal with the adjustments that would have to be made in light of some of the policies that are being implemented by those within the financial and credit market.
The CARES Act has amended Section 1681s-2(a)(1) of the Fair Credit Reporting Act for the United States, modifying it to include the following information:
If a furnisher makes an accommodation with respect to 1 or more payments on a credit obligation or account of a consumer, and the consumer makes the payments or is not required to make 1 or more payments pursuant to the accommodation, the furnisher shall— I. report the credit obligation or account as current; or II. if the credit obligations or account was delinquent before the accommodation— a. maintain the delinquent status during the period in which the accommodation is in effect; and b. if the consumer brings the credit obligation or account current during the period described in item (a), report the credit obligation or account as current.
Thus, as consumers have the option to obtain what is being termed accommodations, where they can defer on loan payments or receive loan assistance during the pandemic if certain conditions are met, the lender who applies these accommodations must continue to report the account as “current” if they have fulfilled the terms. In the United States, there is a concern that based on the definition of an accommodation under the Act, which is an agreement to defer one or more payments, make partial payments, forebear any delinquent amounts, modify a loan or contract, or any other assistance or relief granted to a consumer who is affected by the coronavirus disease 2019 (COVID-19) pandemic, it may not be an automatic process. It is feared that the word agreement indicates an actual agreement to be in place between a lender and each borrower. However, once an accommodation has been made, the requirement to honour these new reporting procedures will continue for 120 days after the end of the COVID-19 national emergency.
The new interim credit reporting standard implemented by the CARES Act was also backed by the United States Consumer Financial Protection Bureau who urged for lenders compliance. This entity also recognized that in such times there would also be the need for flexibility with lenders and credit bureaus with regards to the time necessary to investigate disputes.
In Canada, the major banks have similarly provided relief programs which allow their clients to defer payments up to several months as a result of the impact of COVID 19. The programs often have included a guarantee that the lender will not report the deferral as missed or late payments to negatively affect a customer’s credit rating.
A similar approach is also being taken in Australia. The Australian Banking Association’s CEO, Anna Bligh said “Australia’s banks are here to support customers who have lost their jobs or significantly lost income because of COVID-19, through initiatives such as offering a six-month deferral on mortgage repayments. Customers in these circumstances should not have to worry about their credit rating as well,” “If a customer is granted a deferral on their mortgage and other credit products because of COVID-19, banks will report customers as not having missed a repayment, provided they were all up to date when granted relief.” However in Australia, as it relates to pre-existing delinquent accounts, it was indicated that for those customers who were already behind but received a deferral due to COVID-19, the banks will not report the repayment history information, but will leave the field blank for the deferral period. Once this period has ended, the bank will determine how to report the repayment history information.
Some have supported the concept of having a notation to indicate that you were affected by a natural or declared disaster and the generation of a disaster code. A disaster code could make a difference if a lender actually reads the full credit report when making a decision, such as in hand-underwriting, says Ed Mierzwinski, senior director, Federal Consumer Program at the U.S. Public Interest Research Group, a consumer advocacy group.
Creditinfo (Barbados) Limited also recognizes the difficult circumstances that many are faced as a result of COVID 19. We too have already begun to contact and survey our subscribers to determine what measures they have in place to accommodate their clients. We will be seeking to implement similar measures to ensure that accommodations made by those within the financial sector are truly that, accommodations, and therefore we will also seek to implement measures and procedures to ensure that such would not affect your standard credit report.
A credit bureau also known as a credit reporting agency is an entity which collects, maintains or otherwise processes credit information based on your credit accounts and reflects your credit history and payment patterns into the form of a credit report or credit score. This report or score is in turn distributed to your potential lenders and you. Thus, the main aspect of a credit bureau service is the gathering and the distribution of information relating to your financial performance and service of debts. The credit information being collected from your creditors may include the amount of any loans, credit transactions or any other facilities granted to you, the payment history, the amounts due to be paid, the balances, the date for the last payment and the amounts. This credit information is attached to your credit profile which will also include basic identification information such as your name, an unique identifier like the national identification number to adequately identify each individual consumers and contact details. By combining such information, a credit report or score is generated to efficiently aid with the lending decision.
Credit reporting benefits both lenders and consumers. It can help increase your access to credit as it provides lenders and creditors with reliable information to determine your creditworthiness and serves as a guide to determine whether credit should be extended and, if so, under what terms.
Therefore, a credit bureau serves as an integral aspect of a finance industry and economy as it facilitates greater access to financial services by consumers. In earlier times, lending practices were based on the banking relationship and familiarity with the consumer and further premised on the provision of security. However, with the presence of a credit reporting system, lending institutions can extend credit base on the information available on the credit report, effectively pre-screen the risks, if any, that may be involved in extending credit. With the risks or lack thereof identified or the uncertainty pertaining to a new applicant erased by a review of their credit report, there can be more flexibility in lending practices and the terms imposed for the extension of credit. There may be no need for security or collateral in order to secure repayment. Where there is an increase in a consumer’s ability to borrow money, there is usually a corresponding increase in economic growth.
Therefore, as our slogan indicates Make Credit Work for You! Do not hesitate to contact us to find out how you can obtain your credit report