Don’t just depend on credit scores, banks urged

PETALING JAYA: Good credit scores are what banks seek, but creditworthiness should be measured using other factors as well, says a consumer group.

Federation of Malaysian Consumers Associations (Fomca) argued that past payment records from credit reporting agencies can be flawed indicators in determining the creditworthiness of debtors.

Its vice-president and legal adviser Datuk Indrani Thuraisingham said the credit reporting methods may not accurately reflect a person’s current ability to repay loans.

“When applying for a loan, banks immediately consider the credit report, but they should also consider the applicant’s assets or rental payments and others,” she said.

Many consumers, she said, had been denied loans due to the reports of credit rating agencies.

Among the affected people are those in the gig economy, who may not have a consistent monthly income, or fresh graduates who have not built their credit rating yet.

Indrani also said these credit reporting agencies sometimes keep old data.

Consumers, she added, have the right under the Credit Reporting Agencies Act to request amendments in the credit score report if there is inaccurate information.

Financial planner Jess Chong said the fundamental principle of having good report scores would be by being a good paymaster.

“Banks will review your repayment history to assess your loan application,” she said.

“Additionally, having a credit bureau is also very important –some banks even require customers to have at least one credit card for over a year before they can apply for a loan.”

Referring to scores given by credit reporting agencies such as CTOS, Chong said these reports could be likened to a “resume” for banks to better understand applicants.

“CTOS is a private company that compiles data from the Central Credit Reference Information System (CCRIS) of Bank Negara and legitimate public sources.

“Besides, CTOS contains a unique creditworthiness indicator known as a credit score, whereas CCRIS does not give a direct credit score or rating,” she added.

Chong explained that CCRIS is owned and operated by Bank Negara to gather credit information about borrowers from financial institutions.

According to its website, CTOS operates under the purview of the Registrar Office of Credit Reporting Agencies, Finance Ministry and regulated under the Credit Reporting Agencies Act.

Chong said that both CCRIS and CTOS are equally important when it comes to bank loan applications.

“There have been cases where the customer’s CCRIS report was clean, but the CTOS report showed that he had a court case, where he failed in his payments,” she said, adding that banks will refer to both reports for bank loan applications.

However, Financial Planning Association of Malaysia certified member Linnet Lee said CCRIS is good enough for loan applications.

Banks have the option to refer to other credit reports when necessary, she said.

“Credit reporting agencies, including CCRIS, are required by Bank Negara to provide one free basic report to Malaysian residents annually.

“It is useful for all Malaysians to do annual checks as you can check for any loan or credit card fraud applications,” she added.

Recently, CTOS unveiled findings that highlighted a strong link between consumers’ scores and their likelihood of obtaining loans.

It reported that consumers with an “excellent” CTOS Score are five times more likely to have their loan applications approved.

It also added that for auto loans, individuals with excellent scores experienced a 74% approval rate, whereas those with poor scores had a mere 9% approval rate, while for home loans, those with high credit scores saw a 61% approval rate, in contrast to just 22% for individuals with the lowest scores.