Oran Hall | Rebuilding your credit score

I am in the same boat as the reader whose question you responded to in your column of September 30, 2018, minus the wedding and job aspects. I went into bad debt due to assisting family, which didn't end well, putting me in this situation. I am 30 years old and can't get a loan for a car or house. Would it be possible to publish ways on how to fix your credit score, like getting a secure credit card to rebuild it? I think some Jamaicans are experiencing this issue and don't know who to turn to.

- Ricardo

PERSONAL FINANCE: I can suggest some ways to improve your credit score, but you should recognise that it can be a long and difficult road to recovery when the situation has reached the point where you are not able to get credit as I suggested last week.

My focus will thus be on how to repair the damage to your credit before it reaches the point where your score is so low that getting credit is very hard to come by. At the same time, I believe it is important to recognise that the credit bureau plays a crucial role in the financial system.

From your experience and that of the reader whose question I addressed last week, it is clear that it is very important to weigh carefully the decisions we make even for the benefit of family. Perhaps more attention should be paid to the creation of an emergency fund, not just for individuals but for units such as the family, and thereby obviate the need to resort to borrowing to address financial issues. In some cases, too, insurance could have a place in protecting against certain risks, for instance, those related to certain types of illnesses and to damage to or loss of property.

But let us look at the credit bureau. A credit bureau is an independent agency that compiles and stores data on the borrowing and payment history of consumers to assess their creditworthiness, which is expressed as a numeric or alphabetic credit score, the higher the better, used primarily by potential lenders with the accompanying credit report in deciding to extend credit, and on what terms.

The Credit Reporting Act 2010 provides for a credit bureau to receive the following credit information on consumers from prescribed credit-information providers: the amount and nature of loans or advances or other credit facilities; the nature of security taken in respect of credit facilities, including lease financing and hire-purchase arrangements; information as to financial means, creditworthiness, or history of financial transactions, including antece-dents, and adverse court judgments, and the nature of any guarantee or other non-fund-based facility, and analysis of the above, including any conclusions as to creditworthiness.

It includes the following as credit-information providers: commercial banks, near banks, building societies, securities dealers, the Development Bank of Jamaica, insurance companies, the National Housing Trust, persons in the business of selling goods under hire-purchase arrangements, credit bureaux, persons who publish information on suits and judgments for debt claims, and entities exempt from the Money Lending Act.

The legislation allows for disclosure of credit information to another entity inside or outside of Jamaica, and for disclosure by any entity outside of Jamaica of credit information relating to any transaction that takes place, in whole or in part, in Jamaica. Credit-information providers are required to provide only information that is reliable, cannot share information that is more than seven years old, are prohibited from receiving information from unapproved sources, and from disclosing information they know to be misleading or false.

Generally, younger borrowers tend to have a lower credit score because of their shorter credit history, and borrowers can take comfort in the fact that their written permission would be required for their credit information to be disclosed, and that such information is required to be kept in a secure form.

You can request a copy of your report each calendar year at no cost, and additional reports at a charge of $1,000 plus GCT or $1,500 plus GCT for each additional report, depending on the bureau from which you request it (not the $15,000 which escaped into last week's column) so that you can better monitor your credit performance.

To maintain or improve your credit score, pay your bills on time; incur only debt you can manage; check your accounts for errors; sort out any errors on your account; set up payment reminders; open new credit accounts responsibly; avoid maxing out credit cards; avoid closing out old credit card accounts, if possible, as the long credit history they carry can be helpful to your score if they have been serviced well.

To protect your credit score, be careful about guaranteeing loans for other persons as their failure to pay principal and interest in full and on time could have a negative impact on your credit rating.

If in credit-repair mode, avoid making new applications for credit, sell some of your possessions if possible to pay down debt, make contact with creditors, and get professional counselling. Considering how difficult it can be to restore your credit score to an acceptable level, it is best to prevent it from falling below that level.

- Oran A. Hall, principal author of 'The Handbook of Personal Financial Planning', offers personal financial planning advice and counsel. finviser.jm@gmail.com