As the 2012 Summer Olympics get underway in London, many of us will be following our favorite sports and team members, hoping for wins, records broken and, of course, gold medals. But this being a blog about credit, we naturally had to wonder, “Which countries would score well in terms of their credit reporting systems?”
To learn how credit reporting around the world works, I turned to Norm Magnuson, vice president of public affairs for the Consumer Data Industry Association here in the U.S., and Tony Lythgoe, head, financial infrastructure, IFC Advisory Services, who talked with me from Australia.
Lythgoe explained that in many countries both public credit reporting agencies (often called “public registries”) and private credit reporting agencies exist. The public registries were often initially created to help monitor risk in the banking sector, he said, and as a result they often report only negative information. And privacy laws often prevent those registries from sharing information with private credit reporting agencies.
For example, “France, Portugal, Spain and the Nordic countries have historically only reported negative information,” says Lythgoe. Though he does note, “It’s changing slowly.”
He describes Germany’s system as “quite comprehensive” though the information reported predominantly comes from banks. Their major reporting agency is SCHUFA. Thanks to recent regulatory changes, Germans can have late payments deleted from their credit files as long as the original amount was less than 2000 Euros and the bill was paid within six weeks. Germans can request free copies of their credit report once a year.
Positive information is not reported on consumer credit reports in Australia. “The government doesn’t allow positive information (to be reported) but they are trying to get to a point where they can at least report balances,” says Lythgoe, who told me that lenders rely on applicants to truthfully report balances on other accounts.
If you fall in love with the U.K. while you are there for the Olympics and decide to stay permanently, you’ll find their credit reporting system fairly similar to that in the U.S. There are three main consumer reporting companies (Callcredit, Equifax and Experian) and the use of credit reports in lending decisions has been common for several decades. Both positive and negative information may be reported, as well as public record data like bankruptcy. But there are some key differences:
- Your credit report lists whether you are on the electoral roll at your current address, and if you aren’t, you apparently may have trouble getting credit.
- The GAIN, or “Gone Away Information Network” section of credit reports list contain information about consumers who are behind on payments and have moved without giving the lender a forwarding address.
In Canada, consumer’s credit reports come from agencies with somewhat familiar names: Equifax of Canada Inc. or TransUnion Canada. Canadians can get free written copies of their credit reports, and the information they contain are similar to what you’d find in the U.S.: identifying information, account information about various types of loans, public record information and inquiries.
South Africa has a robust credit reporting system, much like in the U.K., with Experian, TransUnion and Compuscan as the main credit reporting agencies. But the rest of Africa generally has very poor or non-existent coverage, and changing that is a daunting challenge.
The gold medal standard for credit reporting may well go to an East Asian country such as Malaysia, Hong Kong or Singapore. “They have leapfrogged the U.S. and U.K. in terms of technology and they have much more comprehensive databases,” says Lythgoe. In those countries, they have combined consumer credit reporting and commercial credit reporting which is specifically valuable for SMEs (small and medium enterprises) trying to get access to credit, he adds.
China has a public registry originally developed by the People’s Bank of China. “It has been very difficult for the private credit bureaus to establish themselves in a country where there is no legislation to protect themselves,” says Lythgoe. Those who live in Japan, however, had better maintain a good reputation and relationship with their banker. Consumer credit is underutilized, and credit data is “vertically siloed,” says Magnuson, who believes that improvements in the credit reporting system “would make credit available to more people.” Some lending is even done on a “name basis,” Lythgoe reports.
Bangladesh, India, Pakistan, Egypt and Morocco are examples of emerging markets which are still in the early stages of developing robust credit reporting systems, especially when it comes to “microcredit” — very small loans that can help families pull themselves out of poverty. In India, for example, Credit Bureau Information India “Cibil”, was created by the Government of India and the Reserve Bank of India with a focus on reporting and sharing information from the banking sector. It now has a partnership with TransUnion. Several private agencies have emerged recently: Highmark, Equifax India, Experian India and SMERA, all of which aim to collect and report a wider variety of data.
South America has fairly robust credit reporting systems, primarily due to the economic crisis many countries experienced in the 1980s. To avoid a repeat of those economic woes, many of the countries there put into place credit reporting systems that include banks and private lenders, though there are differences by country. Brazil, for example, now has both public and private credit reporting agencies that report both positive and negative information. But it wasn’t always that way. Before reforms, only negative information was reported and debtor’s names were removed from lists of delinquent borrowers when their loans were repaid, offering lenders little in terms of comprehensive credit histories.
[Related Article: The Ultimate Credit Report Cheat Sheet]
In the United Arab Emirates, religious restrictions on lending have prevented the development of a consumer credit reporting system, Magnuson says, adding “Whole countries haven’t embraced it.”
Finally, teamwork is bringing stronger credit reporting systems to Caribbean and the Pacific Islands, many of which are too small to sustain their own credit reporting agencies. “What we are trying to do is work collectively to create one or two credit bureaus that can cover multiple countries,” Lythgoe explains.
By the way, if you decide to relocate to one of the countries listed in this article, you’ll have to start over and build a new credit rating there. Credit data from the U.S. is not shared internationally, or vice versa.
Image: Kenneth Lu, via Flickr