Jamaicans urged to take credit scores seriously

Experts in the financial sector are imploring Jamaicans to pay closer attention to their credit history, as this will significantly impact their ability to access credit.

Keisha Melhado Forrest, chief of credit risk management at JN Bank, said that for the past four years, financial institutions in Jamaica have been using credit reports to assist in determining the creditworthiness of borrowers.

“Once someone applies for credit at Jamaica National, regardless of the type of credit, we usually require that a credit report be produced,” she said. We look not so much at the score, but on the details of the report, such as the actual content of the loan and how the borrower has been servicing the debt,” she explained.

Melhado Forrest was speaking recently on the Financial Gleaner/Jamaica News Network business forum, ‘The Exchange’.

She noted that despite the importance of the credit report, the reality is that most Jamaicans are not aware of the system and aren’t aware of their credit score until they need to do business with a financial entity.

According to the Bank of Jamaica, a credit report represents a comprehensive credit profile of a borrower, which include personal information such as the borrower’s name, tax registration number, date of birth and a credit summary.

The credit summary comprises the credit accounts held by the borrower, whether those accounts are current or past due, and a record of recent credit enquiries made about the borrower.

Lenders examine a person’s credit history to assess their suitability for a loan, and a poor report can lead to much higher interest rates on loans or refusal.

“There is about seven years’ worth of history on the report and about two years’ worth of payments that you can see and analyse,” she stated.

The JN executive noted that one of the advantages of the new system is that prior to credit reporting in Jamaica, financial institutions relied on the disclosures of the borrower regarding their debts.

“Therefore, if the debt wasn’t with our institution, we may not be aware of its existence,” she said.

Melhado Forrest said financial institutions look to the credit report to ascertain the customer’s “borrowing character.”

“What it tells us is whether we can rely on this individual to service the debt,” she said.

She pointed out that while the score is important, it is not the sole determinant for whether a loan is approved or declined. “We want to see the person’s commitment over the years to servicing or repaying their various loans,” she said.

Melhado Forrest added that there is, however, a point at which the best debtor could become over-indebted and, therefore, financial institutions “do not look at a credit report or score alone.

“We must also look at the person’s ability to repay and their ability to take on new debt,” she stated.

WHAT IS A GOOD SCORE?

Craig Stephen, chief executive officer of Credit Info Jamaica, one of three licensed credit bureaus operating in Jamaica, said anything above 600 is considered a good credit score.

He said that data collated by a credit bureau in a borrower’s credit file is used to calculate the individual’s credit score, which is determined by five major factors: payment history, debt balance, age, types of credit accounts, and the number of enquiries about the person’s credit history.

Stephen pointed out that potential borrowers must be aware that regular credit checks by financial institutions can affect their credit score.

“It can affect you negatively, especially if there are too many enquires in a short period of time,” he said.