IN the American credit reference system, the bad guys are penalised but the good guys are rewarded.
Those who pay their bills on time have a very high credit score. And a high credit score means the interest they may have to pay on a loan could be lower as there are different rates for different scores.
“So if you are a good paymaster, you are rewarded, but if you are a bad one, you're punished. In Malaysia, it is all on the bad guys and not on the good.
“On the other hand, in the United States, there is also a ‘whitelisting’ – if you have a good history, then you will have a better credit rating,” says Steven Coyle, an author and specialist in credit control.
As an American living in Malaysia for the past 12 years, he has a good insight into credit reference bureaus in both countries.
He describes the three main companies – Equifax, Trans Union and Experian – in the US as very well developed.
“With a social security number, you can obtain a credit report with the payment history for almost anything, from utility bills, student loans, car loans to credit cards, for the last seven years,” says Coyle, managing consultant of ServiceWinners International and author of Debt Collections: Stir-Fried or Deep-Fried, a book that offers debt collection techniques.
The credit information is available to anyone who wants to do a check, even a landlord renting out an apartment, subject to a signed approval from the potential tenant.
American credit bureaus are governed by the Federal Trade Commission and are subject to the Fair Credit Reporting Act. Under its provisions, Americans have the right to access credit bureaus for free once every 12 months to check their credit score to see if it is accurate. In addition, they can have a free copy of their credit reports if they are rejected for credit.
“Besides payment history past and present, it also shows tax judgements, legal judgements, and even each inquiry (application) made for credit. If many inquiries appear on the report, it alerts creditors to the possibility that the borrower is trying to get some fast cash and is high risk.
“And when a defaulter disappears, they can run a check and see if there are any new inquiries. If one appears, they can then call the creditor and ask if he can get the defaulter’s current address.
“Used that way, creditors there protect and help each other. The US has the lowest ratio of bad debts in the world. It’s not because we're angels but because the system watches you. There are instances when a loan was denied because of an unpaid utility bill of US$50 from years ago. The bill was quickly settled and the loan approved.”
Coyle believes that setting up a similarly comprehensive credit bureau in Malaysia is a big task, but one that is not impossible.
“It is a big jump – but one into the developed world. It has to come sooner or later, and you cannot have a system where credit information is not shared. It has to be something all creditors can access. Right now all they have is CTOS, and that is mainly legal stuff.”
He says a credit bureau should be well connected with different independent sources reporting, and overseen by a government body. Perhaps there should be more than one bureau for competition.
“And legally you need to change some of the provisions of Bafia (Banking And Financial Institutions Act 1989).
“There are some databases out there already. There is CCRIS, CTOS and Telbest (what telecommunication companies use, and is a blacklist) and these will make a good starting point. You also have big nationwide retailers like Courts Mammoth, who could also contribute. The country is not that big and not many people buy on credit, so it is doable.”
Coyle believes that Malaysia will grow even more with a comprehensive credit-referencing bureau.
“It can help all kinds of people. For example, the EPF can report on companies who don’t pay their employees contribution. It helps everybody and only hurts the bad person.
“If you put a good system in place, trust levels will be higher, more business will come here and the economy will grow.”
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