IF you have tried to borrow money from any financial institution in Jamaica over the last decade, you would have had to provide a credit report to the entity you are borrowing from before that loan is processed. That became a provision of the financial landscape in Jamaica since 2010 when the Credit Reporting Act was passed.

But do banks rely on what is in these credit reports to determine things like what interest rates and other terms to offer for loans? The answers is yes, but it is not the only thing banks take into consideration when they are considering your loan application.

First, credit scores, which are embedded in the credit reports generated by credit bureaus, are a measure of an individual’s or company’s creditworthiness, as it represents a prediction of their credit behaviour. In particular, it helps to predict how likely they are to repay a credit facility.

“It is that track record which is taken into consideration in calculating your credit score,” Christopher Brown, CEO of EveryData Jamaica Ltd (formerly CreditInfo Jamaica), told the Jamaica Observer.

“Essentially, it’s a combination of your level of indebtedness, how you service your credit facilities — that is paying on time and in full — and how you have treated previous credit facilities that you may have. Now, those combine into a calculated algorithm which is utilised in North America and here to get a scoring range,” Brown continued. He pointed out that for his company, the credit scores generated range from a low of 250 to a high of 900.

Brown explained that for EveryData Jamaica, a credit score of 900, the highest score, gives an A3 rating, meaning that the customer is very low-risk. A score of 250 gives a rating of E3, which is the worst risk for a creditor.

“Anything above 550 is considered a relatively good credit score,” Brown added.

But how much do banks rely on these credit scores to help determine what interest rate or conditions to offer borrowers?

Chorvelle Johnson Cunningham, CEO of Sagicor Bank Jamaica (SBJ), responding to that question told Sunday Finance, “Currently SBJ does not rely on credit scores for risk assessment for borrowers….Sagicor Bank relies on the invaluable information in the credit reports to inform our lending decisions but continue to do a risk rating for each client using our internal risk assessment framework which correlates to the ultimate pricing/interest rate of our approved credit facilities. Therefore, credit reports are mandatory for all borrowers.”

The Bank of Nova Scotia Jamaica gave a similar response: “Scotiabank utilises its internal scoring model and credit bureau data to determine the risk profile of customers. That risk profile is a material consideration in the rate, terms and conditions extended to customers.”

As for the National Commercial Bank the reply was, “While the information contained in the credit bureau report, along with the generated credit score, are important factors in determining a customer’s creditworthiness, they are not the only variables which are taken into consideration when assessing a client’s creditworthiness as other factors such as income, employment history, repayment history of previous credit facilities held by the customer, among others, are also taken into account. We understand, however, that sometimes individuals may face challenges that impact their credit scores such as unexpected expenses, job loss, or health issues; in such cases we try to assist our customers to find the best-possible solutions to help them manage their debt, which will improve their credit scores over time.”

The answers clearly state that while credit scores are used, they are not the only factor and may not be a big factor in determining borrowing rates.

Christopher Brown, the CEO at EveryData Jamaica, pointing out that the credit scores generated by his company for credit reports show a customer is a riskier credit the closer that individual’s score is to 250 — the lower end — added, “It doesn’t mean that if you have a credit score of, say 350, the bank won’t give you a loan — but they may charge you a higher interest rate.”

But what about the other end? Do banks give customers a lower rate if they have reasonably good credit scores?

A senior banking executive who declined to be named for this article answered that question this way.

“It can…it depends, and [it] is at the dicretion of the bank.”

The banking executive added: “We have a standard interest rate that we advertise for all customers, and the loan officer will start processing a loan at that rate. Let’s say the loan being sought is an unsecured loan. If the standard rate is 15 per cent and that customer seeking the loan meets all the criteria, then he or she would get the standard rate. However, if the customer is a risky one, as assessed by both our internal score and the credit score from the bureau, then that rate may go to 17 per cent.”

Ultimately it was pointed out that any credit term is subject to the quality of the person seeking the loan.

“So it’s not everybody who would be subject to the standard terms. You can have different factors that cause you to look at the person differently — that includes giving a longer maturity and a lower rate if the person has a good credit score. The loan officer can go lower or higher depending on who is the customer in front of them.”

The person said this is because banks have to make provisions for loans they think will go bad, and set aside money to cover their estimate for the value of loans they believe will go bad each year.

“The greater the risk, is the more money the bank has to set aside to compensate for losses. What we set aside for unsecured loans is larger than what we set aside for secured loans. With a secured loan you can call on the asset, liquidate it and pay the loan.”

For another player in the financial landscape, who also requested anonymity, credit scores are usually used in a negative rather than a positive way by lending institutions.

“Our populace is not yet sufficiently educated in terms of how to use their scores to get better interest rates on their loans,” the person said, while acknowledging, “it’s where we need to go for the consumer to benefit effectively. What I see is that the credit score is utilised more as a negative indicator. The only time they use it positively is to seek you out. So, the banks would go into their portfolio to see if you have good credit scores and then start sending you emails about different types of credit cards or loan facilities which you can access from them. Some would call you offering loans as well,” the person added.

“You didn’t ask them for any loans but they are reaching out to you after looking on your history and seeing your credit behaviour, and after recognising that you are someone who is a good credit risk. But if you are armed with a good credit score and you know that they want your business, you can negotiate.”

The individual said consumers should be educated to request lower rates with good credit scores in the same way banks can drive up the rates for those with bad credit scores.

But even with a bad credit score, banks say they may still lend to a customer though that loan would have to get an exceptional approval — especially if the loan is being requested within a certain time frame. For this, the customer would, however, have to demonstrate that their circumstances have changed and they can now pay the debt.

However, “Generally, if you have a bad debt you have to pay it off and wait a certain number of years before we lend you any money. We won’t lend you money if you owe someone else and is not paying them,” the banking executive said.

“If you have never borrowed before you will get a higher price, or we won’t lend to you.”