Credit bureau „knows“ who will not repay

If you are rejected by a bank, another bank can grant you credit. Even a minor ”sin“ in repaying past credit needn't be a problem. „Banks approach information in credit register differently,“ Petr Kučera, CCB Executive Director, says in the interview. And what is the future of credit reporting systems? Maybe insurance companies will also join them...
 
The credit bureau receives quite a wide range of information on customers. What type of information does the credit bureau receive? 

The banking credit register and non-banking credit register managed by us contain information on credit applications  and on the pattern of credit repayment to financial institutions which are members of the registers. 
The registers contain both positive and negative information. In this respect I would like to mention one myth relating to them, that is the difference between a debtor and a non-payer. A debtor is anybody who repays a credit line, while a non-payer or non-paying debtor is a person who has late repayments. In this case, the categorization of credit registers is divided into positive and negative. We operate the first type, in which information is stored from the moment a customer applies for a credit product, followed by the information on their repayments until the credit line has been completely repaid. 
The register contains amounts repaid by the customer, any delay in repayment, the frequency of repayment, etc. 

How long is information held in the register? 

For the whole period of repayment and 4 years after the credit repayment is completed. 

If a customer has a credit card continually for a period of 20 years, will the repayment history of his credit card be register for the whole period of 20 years and the subsequent 4 years? 

Yes and in the case of credit cards and other revolving products it is even card-specific, because you can have a number of credit cards you do not use. Therefore, not only is the fact that you have a credit card recorded in the register, but also what conditions have been granted to you and if you use the card or not. 

Individual banks approach information stored in the register differently. In what way do their approaches differ? 

A bank’s approach depends on its business or risk management policy and also on how sophisticated the analysis of the information from the register is. We know from practice that some financial institutions use the credit report in a very complex way, i.e. they use many items from the standard credit report for their scoring process, whereas, there are others that monitor only some of them. 

It could therefore happen that different financial institutions will regard the same customer differently; where one institution grants the customer credit and another rejects them. 

That's exactly right. This is another myth sometimes associated with registers. Registers as such do not evaluate customers in terms of recommending the rejection or approval of credit. The final decision is made by each financial institution itself; the registers only provide raw data for processing. 
One customer showing some signs of non-payment can still be acceptable for a bank by granting credit with stricter conditions; a decrease in the term of the loan  or an increase in interest rate. For another bank, such a customer will be a rejected from the start. 

The credit bureau provides information on the likelihood of customer repayment in the future as one of its services. Is this not a type of customer evaluation? 

You are reffering to one of the new products launched by the credit bureau this year - the so-called credit bureau score. It is a standard tool used in all developed economies where credit bureaus have been functioning for a long time. It is a statistical summary of information contained in the credit report on each person. 

The credit bureau score is a numerical value expressing the statistical likelihood of repayment or non-repayment of the requested credit product. However, this evaluation is not provided with recommendations. It is only another figure expressing likelihood; the rate of risk acceptance is determined by each financial institution itself. 

From time to time, advertisements appear from companies offering to delete negative information from the credit registers, especially on the Internet... 

Of course, such a "service" is not possible. We have already protested against this once in the media, as this offer appeared largely in the press. Before arranging the credit relationship, the customer agrees to the inclusion their data in the register for the whole period of credit repayment and for four years after the repayment has been completed. The customer also agrees that in case of his failure to repay the creditline, the relevant information will be held in the register for a period of four years after writing off or selling the debt. It is not possible to simply delete information from the register. 

However, I have to add immediately that the credit register works against non-payers, but thanks to the fact that the registers managed by us also contain positive information, the register works in favor of the vast majority of customers.
 
In the whole credit bureau database, less than 3% of customers show longer-term problems with their repayment. For this group of customers, but not for all of them, the register works in such way that their credit applications are usually rejected. On the other hand for all other customers who have a good repayment history, the register is an advantage, as it helps them to access other credit products and makes them cheaper. Through their credit history a customer can demonstrate their credit behavior, and this can also be used by other banks. 

So banks are starting to use largely positive information from the registers. At the beginning of their use, it was rather a rare phenomenon. According to your estimation, how many banks are already using also positive information? 

I would say that today nearly all of them. But you are right that when the register operations started, five to six years ago, the experience in using positive data was not so extensive. However, during the last few years most register users have also been using positive data, such as the total amount of monthly repayment or the total credit exposure.

More and more often we can hear from financial institutions that they do not look at historical non-payments only, i.e. "sins of the past", but also increasingly at how many customers are approaching potentially excessive indebtedness. It is becoming ever more important for them with the growing indebtedness of Czech households. 

We can see that customers who defaulted in the past are now being accepted. On the othe hand, a certain percentage of customers are being rejected who have not defaulted in the past, but their current obligations together with the credit application being assessed could potentially put them in a situation of excessive indebtedness, and in the future they could have difficulties in coping with the burden of debt. 

Excessive indebtedness is often discussed especially in connection with currently increasing mortgage interest rates. Have you also noticede the impact of the growth of mortgage interest rates on the percentage of non-payment and delinquencies of customers? 

For the time being I have to say no. We are monitoring customer non-payment data approximately once a quarter, divided into individual product types, and in the case of mortgages we have not registered anything important yet. 

Generally, the higher percentage of credit lines not being repaid is in the group of consumer credit and credit cards, but in the case of mortgages the situation is very healthy for the time being. Rather, what has changed is that some banks have made their rules for granting credits stricter, so there are fewer applications and less credit lines being granted. 

You have said that there are a number of myths associated with credit bureaus. We have already mentioned some of them. What are the others? 

One of the other myths is the assumption that who appears in the credit bureau has a problem. It is true, of course, if it concerns a negative register. However the registers we manage, contain both positive and negative information, and this is an advantage for the vast majority of customers. 

In Western economies with credit bureaus functioning for tens of years it is quite common that people want to be in the register. It often starts from a customer's student years when they take out credit in order to create their credit history so that they are established customers at the moment when they apply, for example, for mortgages. 

Sometimes a customer is included in the register by mistake and gets some “blemish” of non-payment, for example instead of another customer. In such case, the register is not, I guess, an advantage for the client. How can the customer proceed? 

These are really exceptional situations when an information error in the register is found. However, most often such information is not up-to-date. The standard procedure when a customer discovers an error is to ask the credit bureau for free correction of the data. The credit bureau resolves it with the financial institution that reported the information on the customer. If it really is a mistake, the information is then corrected and the customer gets a new credit report. 

One of the other myths in relation to the registers is that they collect information on the customer’s property. 

People may have thought this in the past but this myth doesn't exist so much now. This was maybe true historically, but now this incorrect information does not appear so much. Of course, it isn't true – registers are only credit bureaus, and so only information on credits lines is included there, but you will not find account balances or information on assets in the registers. 

So is there no information in the register, for example, that a credit line is secured with real estate? 

Information on the type of mortgage security is provided to the register, but it is not possible to ascertain the value from it or any other information on the customer’s property. 

What are your future plans? You manage the banking and non-banking credit bureaus. What is coming next? 

There are quite a lot of development plans for both registers. We are planning the entry of other market segments, such as factoring or telecommunication companies. We would like the non-banking register to grow not only in terms of products, but also in terms of market sector. 

We are also planning to enlarge the banking register with the possibility of reporting information on legal persons. Now, only natural persons (entrepreneurs and non-entrepreneurs) are included in the banking register, unlike the non-banking register. 

In both registers, the product “Fraud Analyser” has already been functioning for some time. Which similary to the register does not evaluate a customer’s financial standing, but rather his creditworthiness and identification information, for instance whether the person applying for a credit product is pretending to be somebody else, in order to prevent the misuse of stolen identities. 

Here you mean, for example, the misuse of stolen identity cards, etc. 

Yes, among other things. It also concerns managed criminal groups performing illegal activities in many regions. For example, monitoring the frequency of the use of the same telephone numbers by various applicants, non-standard use of addresses, etc.

Is the non-banking register considering the inclusion of data on, for example, insurance companies? 

Of course it does, but insurance companies are regulated by a special act on the insurance industry, and so we are looking at if and how it would be possible in the future. But some interest in that exists... 

...both by the credit bureau and insurance companies? 

By some insurance companies who we've held discussions with. 

Are you monitoring any other trends in your sector?
 
Yes –  a new trend is coming in the use of using credit bureaus worldwide and more and more in our own country. Historically, register members inquired about a customer only at the moment of credit application assessment. However, credit risk exists for the whole period of credit repayment. Therefore the situation arises when the control of the current credit portfolio is more frequent than sending inquiries at the moment of the application for a new creditline. Financial institutions are getting used to the regular monitoring of their credit portfolio. 

The present united Europe can bring excessive indebtedness risk across states. Are you also considering international cooperation? 

We are considering this and it has already been discussed for a long time in the European Association of Consumer Credit Information Suppliers (ACCIS). And of course, the European regulator is also considering it. We are seeking a way to make the information from the national register accessible somehow, as in each country the credit bureaus operate with various databases. 

Within what time frame could the registers be interconnected? 

Not to be a bad prophet... personally I think in two or three years. 
In some countries such exchange of information is already working off-line – for example in Benelux, Italy with Germany and Austria... but according to my information it is not used too actively yet. 

It is not used much... are financial institutions themselves not interested in that? 

I would say that consumers are not interested in taking credits from abroad for the time being either. 

Thank you for the interview.