F.A.Q - CREDIT REFERENCE BUREAU
What is Credit Information Sharing (CIS)?
Credit Information Sharing (CIS) is a process where banks and other credit providers submit information about their borrowers to a credit reference bureau so that it can be shared with other credit providers. It enables the banks to know how borrowers repay their loans. This is also known as “Credit Reporting”.
What is a Credit Reference Bureau?
A credit reference bureau is a company licensed to collect and combine credit information on individuals from different sources and provide that information upon the request of a bank. Banks can only request a report on a borrower who has actually applied for a loan from them.Such reports help the bank decide whether you as a potential borrower will be able to repay a new loan. If the report shows that
you have a 'delinquent loan' - one on which you are no longer making payments - the bank will consider the degree of risk in lending to
you. It does not mean that you must be denied new credit, but lenders will be more careful when lending money to you, or may apply
tougher lending conditions. The Central Bank of Kenya has been mandated by law to license and supervise the operations of such
bureaus.
Why is credit information sharing being introduced in Kenya?
Many borrowers make a lot of effort to repay their loans, but do not get rewarded for it because this good repayment
history is not available to the bank that they approach for new loans. On the other hand, whenever borrowers fail to repay their loans, banks are forced to pass on the cost of defaults to other customers through increased interest rates and other fees. Put simply - good borrowers are paying for bad. This is unfair. Credit reporting allows banks to better distinguish between good and bad borrowers.Someone who has failed to pay their loan at one bank will not simply be able to walk to another bank to get another loan without the
banks knowing about it. Over time better information on potential borrowers should mean that it will be both cheaper and easier to
obtain loans.
What is a Credit Report?
A Credit Report is a report generated by the Credit Reference Bureau, containing detailed information on a person’s credit history, including information on their identity, credit accounts and loans, bankruptcies and late payments, and recent inquiries. It can be obtained by prospective lenders only when they have permissible reason as defined in law, to
determine his or her creditworthiness.
What is a Credit Score?
A Credit Score is a measure of credit risk calculated from a credit report using a standardized formula. A positive score is characterized by frequently paid bills; lack of defaults on outstanding balances; maintaining steady employment; the use of no more than 25% of a customer's available credit. On the other hand, a negative credit score is
characterized by late payments; bankruptcy; fraud charges; liens or foreclosures; loss of employment.
Will your bank tell other banks about whether you are paying your loans?
Yes. If you have defaulted on a loan, then your bank must share this with all other banks. This is called negative information. In Kenya, the law now requires that banks have to share negative information about their customers with other banks.
What other 'negative information' does your bank have to share with others?
Banks are required to pass on information if your cheque is dishonoured or if your account is compulsorily closed. Other information
that must be reported includes: proven frauds and forgeries; cheque kiting; false declarations and statements; receiverships,
bankruptcies, and liquidations; credit default and late payments; use of false securities; and misapplication of borrowed
funds.
What if you are a good borrower?
If you have taken a loan and are repaying it regularly and on time, banks can share this information with other banks. This is called positive information. The law allows banks to report positive information but does not insist on it. It is however beneficial to you if shared, as it increases your credit score, and by extension the value of your “information collateral”.
Should you request that your positive information be shared?
Banks and other credit providers use credit reports obtained from credit bureaus as part of the lending decision process. Having only one half of the picture (negative information) runs the risk of it becoming the only deciding factor - a blacklist with the potential of restricting access to credit. That is why many customers will also want their positive information to be reported regularly to credit reference bureaus. If banks are aware of a customer's good payment history, that consumer could benefit from lower interest rate, easier terms and/ or less collateral. It will be easier to shop around - go to another bank that might offer you better terms. By signing the consent to share positive information when asked to by your bank, you stand to benefit.
How safe is this information about you now that it is held outside your bank?
The law requires credit reference bureaus to meet international data security standards in the transmission and storage of information in their custody. Regular data security audits are conducted by the Central Bank of Kenya and bureaus that do not keep data safe risk losing their licenses.
Can you challenge wrong information about you?
Customers have the right to dispute any information about them held in a credit reference bureau. The law and regulations also set out procedures for settling disputes. If a dispute is not settled within a specified time period, the disputed information will have to be removed from the databases of all credit reference bureaus. You should send your credit report disputes directly to the credit bureau that provided the report containing the error. You can dispute any incomplete or inaccurate information on your credit report.
How long will negative information remain on my credit report?
A bureau is required to retain information on non-performing loans until the end of seven years after it is repaid. This does not mean that no lender is allowed to lend the borrower any money during this period. It only means that the lender will take extra caution and negotiating good terms will become more difficult for such a borrower.
How often should I check my credit report?
Your credit history plays a major role when you apply for any type of credit or loan, such as a credit card, auto loan, mortgage, employment screening, utilities deposits and insurance. It is a good idea to know what is included in your credit history before applying for credit or a loan. The law requires credit reference bureaus to supply you with one free credit report per year, and also issue you with a free credit report whenever a bank makes an adverse decision about you using information obtained from a credit report. You
should therefore take advantage of the legal requirement to obtain free credit reports. At all other times, you may buy your credit
report at a minimal fee from a credit reference bureau.It is very important for you to update your details with your banks, in order to ensure the accuracy of the Credit Reports. You are also expected to point out errors in the credit report to avoid incorrect decisions on your credit application or inaccurate credit scores.
What information is not in a credit report?
Your credit report does not contain — and the bureaus do not collect — data about race, religious preference, medical history, personal lifestyle, political preference, friends, criminal record or any other information unrelated to credit.
What are the future plans for credit information sharing in Kenya?
Information from other sources - water, power and phone payment made regularly; tax liens and other claims on spare cash;
court data,etc - can also help banks to assess your ability to pay. Collectively, negative and positive
information and the addition of information from other sources is known as full file reporting and gives a more
complete picture of you as a potential customer. Once the basic credit reporting system has been established in Kenya, it is
hoped that we can move to full file information sharing. With better information about customers, banks will be able to make
more informed credit decisions, reducing costs and improving approval speeds. This will be good news for both
customers and banks.