There is a lot of information floating around about credit reporting. However, not everything you hear or read about is true. An immediate step towards good credit health and empowerment would be to learn everything you can about credit reporting, as well as making sure that you have the correct information.
We shed some light on 5 common myths for you right here.
Myth #1: Credit reporting agencies ‘blacklist’ consumers with credit issues.
Contrary to popular belief, credit reporting agencies (CRAs) do not ‘blacklist’ consumers. CRAs merely collect and compile data available from legitimate public sources, such as newspapers (legal proceedings, bankruptcy notices and litigation records) and authorised government agencies.
The information in your CTOS report empowers you to take charge of your credit health and take corrective action if needed. Banks and lenders use the information in credit reports to help them make decisions about extending credit, approving loans and more.
In Malaysia, CRAs are entities registered to carry out credit reporting operations under the Credit Reporting Agencies Act 2010. These agencies collate credit information that can be used in establishing a person’s eligibility for credit. It is always the lenders discretion whether or not to approve any loan application.
Myth #2: Credit reporting agencies use illegal methods to obtain information about you.
As a government-registered CRA, CTOS obtains information about consumers from legitimate public sources, such as newspapers (legal proceedings, bankruptcy notices and litigation records) and authorised government agencies.
Myth #3: Settling an old debt immediately ‘clears up’ your credit report.
While you definitely need to pay off your outstanding debts to have good credit health, it doesn’t mean that records of your settled debts will disappear immediately from your credit report. It can take time for records of unpaid bills (including credit card debt) to be cleared from your report – sometimes up to a few months. Rest assured, however, that once you clear up your unpaid debts and stay current on your credit obligations, you’re on the right track to eventually having a clean credit report and higher credit score.
Myth #4: You don’t need to check your credit report if you’re not heavily in debt.
It’s crucial to check your credit report, even if your debts are modest or almost paid off. One reason is because it’s a good way to spot identity theft, as people can steal your personal information and misuse it (and run up large bills and debts in your name). Checking your credit report can help you spot the warning signs, such as loans you never applied for, or litigation proceedings against you that you were unaware of.
Another good reason to check your credit report is to know where you stand, credit-wise. This is so you can spot any ‘problem areas’ in your credit history and start fixing them early. Getting a credit report with a credit score will also give you valuable insight about your credit health and how you’re doing financially with a strong credit score, you may even quality for special deals for your next financial product.
Myth #5: Nothing can be done about a bad credit report and low credit score.
The good news is that poor credit health or a low credit score is not the end of the world. If you suspect that your credit health could be poor, the first step is to obtain a detailed credit report with your credit score. This will give you a good idea on how you’re doing, credit-wise.
The next step would be to take corrective action to start fixing your credit health. Start by paying your bills and credit obligations on time; also, get current on your bills and stay current. Don’t apply for more credit than you really need, and start cultivating good financial habits and responsible credit behaviour. If you maintain discipline in your credit activities, your credit report and credit score will definitely improve in time.