Career & Education

Credit rating 101

Why young people should establish and monitor their credit history

Sunday, August 26, 2018

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Knowledge about the credit reporting system is essential, even for young people starting out in their careers, as it will eventually affect future employment and access to credit.

“It's imperative that young people pay close attention to their credit history, as unpaid financial obligations will end up on their credit report, negatively impacting their credit rating for many years,” said Rose Miller, grants manager at JN Foundation.

Miller, who is also head of the JN Foundation's BeWi$e Financial Empowerment Programme, advised that knowing how credit scores and credit reports work is, therefore, an important part of one's overall financial education and responsibility.

“Even if you have no immediate plan to acquire a credit card, a mortgage or auto loan, you should know that prospective employers and landlords may check your credit rating to determine whether they will hire you, or rent to you,” she pointed out.

What is a Credit Report?

According to the Bank of Jamaica, a credit report represents a comprehensive credit profile of a borrower. That includes personal information such as the borrower's name, Tax Registration Number (TRN), 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.

Miller explained that when one borrows money, whether through a revolving account, such as a credit card, or an installment account, such as an auto or student loan, this data is collated by credit bureaus. Jamaica currently has three of them: the CRIF NM Credit Assure Limited, Credit Information Services and Creditinfo Jamaica Limited.

Data collated by these bureaus 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 and types of credit accounts, and the number of inquiries about the person's credit history.

Putting it simply, Miller said the credit score is a number that assists lenders to decide whether or not to approve a loan, what types of loans to offer, and at what rate. The score is computer generated after analysing details of the applicant's borrowing history.

“The higher the score, the better,” she informed. “Student loans, credit cards, late payments or unpaid loans and even mistakes listed on your report could result in a low score, resulting in your loan application being rejected.”

How to Apply for aCHECK REPORT

Miller advises that everyone should view their credit report at least once per year, as this is an important part of staying in touch with one's financial profile.

“This check is important to ensure that all the information contained in the report is correct. Any inaccuracies should be dealt with speedily,” she said.

“Under the Credit Reporting Act (2010), all Jamaicans are entitled to see what information is contained within their credit profiles. Furthermore, every Jamaican over the age of 18 years is entitled to one free credit report each calendar year,” she informed.

To access a credit report, you are required to visit one of the three credit bureaus. You will need to complete a consumer credit report request form and submit the following documents: TRN, a valid government-issued ID, and proof of address.

It takes up to 48 hours for the credit report to be delivered, usually by electronic mail. However, express service is available at the cost of $200.

Good Use of Credit
• Check credit report and credit score regularly
• Use Credit Card responsibly
• Pay all bills by their due date
• Pay credit card bills in full to avoid paying interest
• Pay off high interest credits as soon as possible
• Acquire appreciating assets to create wealth

Poor Use of Credit
• Never check credit report or credit score
• Use multiple credit cards
• Make late payments
• Carry unpaid debts
• Carry balances higher than 35 per cent of total credit available
• Forced to cover emergencies with loans due to the absence of an emergency fund
• Ignore student and other loans or misses payments and deferment dates

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