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Credit bureau encourages a culture of repayment

Published:Wednesday | November 13, 2013 | 12:00 AM
Dr Andre Haughton

What is the credit rating bureau?

THE CREDIT bureau provides information that will allow loan institutions (commercial bank, credit union, loan agency) to better assess the credit worthiness of a borrower (you).

The credit bureau will collect and make credit information from lenders and other relevant credit information sources on a borrower's credit history available to prospective lenders at a price. Basically, a credit report provides the entire borrowing profile of the creditor. The information provided includes, for example; the borrower's name and Tax Registration Number, any debt the borrower paid off or has outstanding to be paid as well as any recent credit inquiries about the borrower's credit history.

The lender as well as the credit bureau will use the information to generate credit scores. These scores help lenders to predict the credit worthiness of a borrower, and analyse the likelihood of a default. The establishment of the credit bureau is governed by the Credit Report Act.

What is the credit report act?

The Credit Report Act establishes the guidelines which ensure that credit reporting is fair and unbiased in Jamaica and meets the needs of the local business environment for the exchange of creditor information.

According to the Bank of Jamaica (BOJ), the act came into effect on October 1, 2010, and provides the guidelines for the confidentiality, accuracy, relevance, and proper utilisation of credit information.

The report addresses other issues including: the licensing of persons who wish to offer credit reporting services, eligible credit information providers, the nature of credit information, use of credit information, persons who can request a credit report, accessibility by customers to their own credit information, and handing of customers' complaints.

Why a credit rating bureau?

The credit bureau will give lenders information to better assess the credit worthiness of borrowers. It will allow banks to make loan decisions easier and reduce the waiting time for banks to make a decision on loan offers.

As such, it will make it easier for individuals to access loan facilities offered by banks and other financial institutions. Also, with a good credit score, borrowers can negotiate better interest rates.

The bureau will help to promote good credit discipline in borrowers and encourage a culture of repayment, thereby reducing bad debts and increasing the profitability of banks and other financial institutions that offer loans. Overall, the credit rating bureau will increase the functioning of Jamaica's financial system.

How does the process work?

The credit rating bureau collects information on a borrower's income and credit worthiness in relation to transactions, information regarding the loan, advances and other credit information granted to the borrower, and other information on the history of any financial transactions involving the borrower.

This information is pooled and used to form numerical or alphabetic scores (your credit score). The scores can be requested by a credit information provider, the BOJ, and you can request your own information.

By law, you can send a written request to the bureau to receive your free credit information once per year. Additional requests in a given year will have to be paid for.

Who supervises the process?

The Credit Report Act is facilitated by the credit reporting regulations, and was approved by Parliament on January 14, 2011. It outlines aspects of the licencing processes including type of application, application forms, and licencing fee.

Only entities licensed under the act can offer credit bureau services, and only specific credit information providers can source and use credit bureau data and information. Under the act, the BOJ has the authority to supervise the credit rating system, and is responsible for reviewing applications and making recommendations on applications for licences to the Ministry of Finance.

All applications for licence to establish a credit rating bureau in Jamaica are made to the minister of finance, with copies submitted to the BOJ.

What if you are unhappy with your score?

If there are any complaints or disputes regarding a credit score, a consumer can make a written complaint to the bureau. If the consumer is not satisfied with the outcome of the first complaint to the bureau, they can file a second complaint to the supervisory body - the BOJ. The BOJ will then investigate and make a ruling on the issue. If either the consumer or the credit bureau is unhappy with the result, there is the right of an appeal to the Appeal Tribunals. For further information, see the BOJ website at www.boj.org.jm.

Dr Andre Haughton is a lecturer in the Department of Economics on the Mona campus of the University of the West Indies. Follow him on Twitter @DrAndreHaughton; or email editorial@gleanerjm.com.