AS more companies begin to integrate credit reporting into their lending or business decisions, it is becoming more imperative for young Jamaicans to appreciate the tenets of credit reports and how to repair them when things go wrong.

Jamaica’s credit reporting framework got underway following the passage of the 2010 Credit Reporting Act which allowed for the formation of credit bureaus regulated by Bank of Jamaica (BOJ). Three have been granted licence so far. As a result, financial institutions have become more judicious in doling out credit to their customers while applying higher interest rates to some borrowers whose credit is far from impeccable.

Thus, it is crucial that more Jamaicans take the right steps to build and maintain a good credit standing as bad habits can cost them in opportunities and additional costs at checkout.

“Sometimes people run away from having a credit card, and [I] encourage people not to do so. If you don’t have credit you will not, in a sense, be able to be assessed and appraised as to how you have handled that credit. So, getting a credit card is a good thing to put you on the radar so that when you require credit, you have some amount of information in the system to show that you have credit and how you have managed that credit,” said Christopher Brown, chief executive officer (CEO) of EveryData Jamaica Limited, in an interview last Wednesday.

Apart from the traditional financial institutions like banks or building societies which would provide credit-related information to credit bureaus, there are different credit information providers (CIPs) who are working with credit bureaus to assess their customers. These inclued hire purchase firms offering furniture on agreed terms, insurance premium financiers, and even microfinance institutions. Student housing company 138 Student Living Limited, at a previous annual general meeting, mentioned reporting to credit bureaus, with other entities like Barita Investments Limited and some subsidiaries of the Jamaica Stock Exchange (JSE) being CIPs as per prior newspaper advertisements.

These CIPs would provide information to a credit bureau such as the type of facility accessed, the amount originally disbursed, amount outstanding, and the status of the facility such as if it’s on time or in arrears. The different credit facilities are all factored into a model processed to produce a credit score which indicates the risk associated with providing credit to an individual.

At EveryData Jamaica, their credit score ranges from 250 (E3), which is very high risk, to 900 (A1) which is very low risk. If someone has a score of 660 (B1), they’d be considered low risk and could be offered preferential loan rates by some financial institutions, such as a bank offering 200 basis points (2.00 per cent) off an unsecured loan headline rate. A good credit score enables someone to shop around, comparing different credit providers who would be glad to have that customer’s business.

While being a young customer can have weighting on someone’s credit score for a short period of time, it has less of an impact than other substantive factors. Paying an obligation on time by the due date; credit utilisation; and the number of credit facilities already accessed relative to income, assets and other factors, will have greater impact on someone’s credit score. It should be noted that a bad debt will still show up on someone’s credit report for at least several years, even if an institution has written it off. This will impact a borrower’s ability to seek credit at another institution as they might view that individual very negatively.

“Go in and have a conversation. You may think it’s forgotten, and the bank has taken it over, and you’re scot-free. It will be on your report, and it would be advisable to go in to have the discussion as to what can be done to close that out. Sometimes it may be gone to other collectors, or the entity might still have an interest within it and can still have that discussion with you,” Brown added on having dialogue with lenders if someone falls on hard times, rather than having the institution reach out instead.

Each consumer is entitled to at least one free credit report once per year, under the law, from each credit bureau. If someone identifies an error by a CIP on their report, they should register a dispute through the credit bureau which will reach out to the CIP to seek clarity. That dispute needs to be resolved within 14 days; and if the CIP hasn’t resolved it within that time frame the credit bureau can have that contract code disabled on your credit report so that it doesn’t continue to negatively affect a consumer until it is resolved.

A credit bureau is not allowed to make any updates to someone’s credit report unless the CIP provides written instructions to make clarifications to the bureau’s records. Also, a lending institution cannot access a consumer’s credit report without a signed consent form by the consumer allowing the lender to request the information from the credit bureau.

Some things to do to build credit:

– Getting a credit card is one way someone can start to build a credit history. This will enable someone to get a credit score if they have never had an interaction with a credit information provider.

– Switching from prepaid to postpaid with your mobile phone providers. Different telecommunication and utility providers report to credit bureaus.

Some things to do to improve one’s credit include:

– Asking your lender to change the due date on a credit arrangement to better match your pay cycle. If your loan due date is the 15th of the month but you get paid on the 24th, consider asking the lender to move your due date to the 28th of the month so that you will be able to pay on time and not incur any penalties.

– If your credit card cycle ends on the 27th of each month, then your due date might be the 18th-20th of each month. This is a problem, since you will always be paying your credit card off after the due date, which lowers your credit score and results in you incurring additional fees. Each customer can request for their bank to change their credit card cycle so that it better reflects their pay cycle. Thus, asking for your credit card cycle to be moved to the 8th of each month means that you’d have enough time to pay off your credit card statement balance in full.

– If you’re laid off or become sick, reach out to your lender and discuss a change to the terms of your credit arrangement. This may include a moratorium wherein you don’t make payments for a defined time and thus extend the life of the loan, reduce your monthly payments for a particular period, and increase your monthly payments when your situation stabilizes again.

– If you have a credit card, you should aim to keep the credit card utilisation around the 30 per cent mark. Credit card utilisation is usually defined as the credit outstanding divided by the credit limit. A higher credit utilisation can reduce your credit score.