By Robert Andre Emmanuel
From September, residents across the Eastern Caribbean Currency Union will have access to a detailed financial document, which can help them to save thousands of dollars when applying for loans.
Credit reports have been a part of the global financial system for years, often used by financial institutions to assess someone’s credit worthiness through a record of a potential borrower’s credit activity and credit history, giving lenders information necessary to make wise loan approval decisions.
Think of it like a financial report card; depending on your score, banks would be more open to providing you with better loan terms or would be willing to lend you more money.
The EveryData ECCU, which is the official credit bureau of the Eastern Caribbean Currency Union, will be headquartered at Green Gables Estate in Antigua.
Shannette Archibald, from the Eastern Caribbean Central Bank (ECCB), and Van Reynders, Chief Executive Officer of EveryData ECCU, the official credit bureau of the Eastern Caribbean Currency Union, held two town hall meetings this week to help members of the public better understand credit reporting.
Observer media attended one of these sessions to help break down some of the key questions and information that the public needs to be aware of.
How does the credit bureau collect and compile information for my credit report and who has access to that information?
Information about your financial health and loan history will be provided from what the credit bureau calls Credit Information Providers (CIPs), essentially the financial institutions that persons use most often, namely banks and other licensed financial institutions, micro-financial institutions (such as Axcel Finance and Courts Ready Cash) and credit unions.
“These institutions will send your information to the credit bureau then the credit bureau will take that information to generate a credit report … and then from that report they will generate or calculate a credit score,” Archibald explained.
“In the first instance, we are only using banks, credit unions, but later on, we’re going to move to higher purchase companies, utility companies and credit card providers.”
Financial institutions are expected to report their information to the credit bureau at least once a month with the report reflecting the last 12 months over a seven-year period.
By law, if you are 18 years of age or older, you are entitled to one free copy of your credit report at any time during a calendar year, enabling you to confirm your credit status and validate the accuracy of all the information reported by those institutions.
However, Reynders stated that the credit bureau is working on a mobile app which would allow the public to view their own credit report whenever they wish.
Additionally, while the banks are able to share your information with the credit bureau once they give you notice, a person’s credit report cannot be accessed without an individual’s permission, or they face high fines.
“You have control over who sees your information, so none of the banks or lenders just have access to your credit information, other than yourself and the credit bureau,” Archibald stated.
“Banks can only have access to see that [detailed report] when you say it’s okay, so when you go for a loan, that is when they’ll ask you for the consent to check the credit bureau and see that report.
“So, if a bank or anybody else has checked your credit score or report without your consent, we as a regulator will deal with them and it’s up to $100,000 in fines.”
What factors into a credit score and if you see information on your credit report that is inaccurate, what can you do to address it?
A credit score is a prediction of your future credit behaviour such as how likely you are to repay a loan on time, the length and diversity of your credit history, how often within a short period of time do you apply for loans.
The credit score is rated on a scale of 250 to 900 (with 250 being very high risk) and banks and other lending institutions would use the score to make a preliminary assessment of the type of loan offer they can make.
Having a negative credit score will not prevent you from having access to loans, but it does mean that banks would be less likely to rely on your financial reputation as a form of collateral.
Additionally, the ECCB representative highlighted that missing a loan payment due to unforeseen circumstances would not immediately impact your credit score.
“So, for example, let’s just say I pay my bills in January, February and March but then April came, and my daughter got sick and needs surgery and I have to pay $7,000.
“Am I going to pay the bills or am I taking care of my daughter … so we’re going to put that money to taking my daughter, and then the following month I’m going to see if I am able to catch back up and if I am able to catch up on those payments for April and May, my score—which was at 725—would not move from 725 all the way down to 652 because I missed one month.”
Meanwhile, any information on your credit report that is inaccurate can be challenged, according to Archibald and Reynders.
According to the ECCB, a written note of dispute must be sent to the credit bureau and the bureau will be required to investigate the disputed information, seek clarification from the provider of the disputed information and take any necessary steps to correct the information.
“You have legal recourse if the financial institution does not correct that information within 15 days … [and] so why that is important is we want you to be assured that this is not a system that’s out of your control and even if there’s information there that you don’t agree with, you are fully empowered to make sure that that information is correct,” Reynders said.
Moreover, checking your credit score frequently will not negatively impact it.
“So, if you check your own credit report through the application or through our website, it doesn’t affect your score—this is called a soft inquiry so you can request your free credit report or check through our application every day if you like.
“However, if a financial institution checks your report every day or you apply for credit with a number of institutions within a short period of time and they check your credit report, it’s going to decrease your score and the reason for that is because it’s indicative that you are shopping around for credit and maybe those institutions issued the credit but have not yet reported it and so it’s indicative of cash flow issues,” Reynders added.
How does the credit report benefit you in getting better loans, especially if one has never previously applied for a loan from a formal institution like a bank?
The introduction of the credit bureau will revolutionise the financial system, allowing individuals who previously lacked access to traditional banking services to transition more easily into formal financial system.
Banks will now recognise the credit history from microfinance institutions, utility companies, and telecom providers, among other information providers, and will now be encouraged to offer better rates and terms to individuals with good credit scores.
“Take for example, a small-scale farmer in more of a rural area of the island borrows from microfinance – that information is being shared with the credit bureau now.
“Historically, the banks and the more formal financial institutions would not have access to that information so when that small-scale farmer goes to a more formal institution, they would say we don’t recognise your history and so they are a little bit more hesitant to [offer loans].
“So where the credit bureau benefits that person in that exact example is that we have data from small-scale lenders—utility companies, telecoms companies, and ultimately, all of this information on these lower levels is now recognised by formal finance institutions to say, maybe you have not done business with us, but we are recognising your reputational collateral from these lower levels of finance so that they can more easily bring you into the more formal finance system,” Reynders said.
The credit bureau will also likely increase competition among financial institutions. Archibald illustrated this point: “Let’s think about the scenario here: we have bank A and bank B, and so bank A is the posh bank that one would have to go through a long process.
“But bank B is a much smaller bank and so they can afford to make the process much easier, and they now have access to this credit bureau, so they going to say yes if you want a loan. Because they have access to the credit history and report, they can give you loans in record time.
“Will people go to bank A or come to bank B? And when Bank A realises [their customers are leaving them], they’re not going to just sit there and stay still.”
As Reynders concluded, “Those institutions that become more efficient, give better interest rates, give loans quicker, and have less requirements for collateral, they are the ones that are going to get the best customers.”
