Barbados’ Fair Credit Reporting Act, which was passed in December 2021, has now been proclaimed. With this new legislation, which is intended to regularise credit reporting activities, now in effect, Barbadians can expect to see their credit history being a bigger factor in how easily they can access loans or other types of credit, or even find a place to live.
With that in mind, here are five things you should know.
What Exactly is Credit Reporting?
Credit reporting is the process of compiling information about a person (or entity’s) credit and repayment patterns. This information is collected and analysed by credit bureaus, which then prepare credit reports and may assign the person a credit score. Your credit score estimates your ability to meet your financial obligations. Credit bureaus then provide that information to financial institutions and other businesses that subscribe to them.
That means that when you apply for a loan, go to buy something on hire purchase, or try to rent an apartment or house, the business can check your track record and base their decision on that.
Under the new Act, the financial institution, company, or potential landlord will need your permission to access your credit report, but you should know that they can make that permission a condition of them doing business with you.
How Do Credit Bureaus Get Information About Me?
You might be wondering where the information in your credit report comes from. Credit bureaus get it from financial institutions and other companies with which you have previously done business.
The Fair Credit Reporting Act identifies some types of businesses that will be obligated to supply this type of information, namely commercial banks, credit unions, finance and trust companies, and insurance companies that provide credit. The Act also allows the Central Bank of Barbados, which will be in charge of regulating credit reporting activities, to designate other types of businesses as credit information providers, among them utility companies, businesses that offer hire purchase, and some government agencies.
As with businesses accessing your credit report, these entities will need your permission to share your information. However, you may not always be explicitly asked to do so; your consent could also be part of the agreement you sign, there may be a sign on the business’ premises or a note on its website, or it may be considered a condition of you utilising their services.
What Information is Being Collected About Me?
Credit information providers will share both personal information such as your name, date of birth, and address (but not your race, religious or political affiliation, or sexual orientation) and information related to your financial affairs. They will provide detailed information on any outstanding loans you have, including the date you took it out and how much it was for, the interest rate, the repayment schedule, the current balance, and the last time you made a payment on it. This applies to your hire purchase agreements as well.
If you are acting as a guarantor for someone or if there is a pending lawsuit against you, they will also report this.
Because it is so sensitive, the need for confidentiality and secure storage of this data is spelt out in the new Act, and there is a $50,000 penalty for entities that breach it.
How Will My Credit History Affect My Ability to Get a Loan?
Now that businesses will have access to so much information about you, its natural to wonder if this will make it easier or harder for you to get a loan.
It depends. Even with credit reporting now being regularised, companies and other entities ultimately decide whom they do or don’t do business with. It’s only natural, however, for them to prefer to do business with customers who have a good track record of meeting their obligations, as these customers are considered lower risk. Having a good credit history is a plus.
Conversely, if you have a poor track record when it comes to your credit, you could be considered a bad credit risk.
It’s worth noting that there are other factors that financial institutions and other lenders consider, so a good credit history is not a guarantee. But it is an advantage, and something that you can control.
How Do I Get and Maintain Good Credit?
The question then is how do you maximise your chances of getting a loan or some other type of credit should you need it?
The simple answer is to always pay your debts on time and in full. Reality can be more complicated, however, and even with the best of intentions, you could find yourself in a situation where it becomes difficult to do so. In those circumstances, you should approach your lender to discuss the challenges you are experiencing.
Sasha Shillingford, General Counsel at Republic Bank, urges borrowers going through a tough time financially to do this. “Instead of waiting until the arrears happen, the interest builds on the arrears, and that mounts to such a level where it is now impossible to really try to get it under control, it is better to come into the bank.” If you do, she says, banks are often willing to work with you, and that can help to keep your score on track or at least get it heading in the right direction.
Now that you’ve read this article, you should have a better understanding of credit reporting, what information is being collected and shared about you, where it will come from, and how it will be used. And critically, you understand how you can help influence your credit score, and by extension increase your chances of being approved for a loan or some other type of credit should you need it.
Get more of your credit reporting questions answered here.