Credit reference bureaus don’t settle disputes on loans

From my last week’s article on “Get a copy of your credit report before applying for a loan” I realised from the readers’ comments that many borrowers hold misconceptions regarding credit referencing as they seek to access affordable loan through use of their credit histories.

Although not limited to these, the following are some myths I captured from the readers’ comments that I would wish to clarify.

I have never taken a loan implies a clean credit history

If you have never taken any loan facility, it means you have not demonstrated if given a loan or credit facility you will pay back promptly.

Therefore, to have a credit history you must open a credit account to establish a line of credit that will become the foundation of your credit history.  No credit record at the bureau means clean or good credit history

This is a myth that could have severe impact on the lenders decision.

Currently, the banking act requires lenders to share negative information about their customers with other banks through a credit reference bureau.
Given this, a customer who has never taken a loan facility but has defaulted on other utility debts such as water, electricity would not have his credit history reflected at the bureau.

Therefore in such a case, absence of a credit record at the bureau cannot be inferred as a good credit history but only an indication that either, the customer has never taken a loan facility with a bank or had taken and repaid promptly.

Bad credit history means no access to future loan facilities

This is false. Where you as the borrower has defaulted a loan, your lender will submit negative information to a credit reference bureau so that it can be shared with other credit providers.

The non repayment record will then be part of your credit history and this does not mean that you cannot access further loan facility from any lending institution. All it means is that whenever you approach lenders, they will take caution in their decision.

Keeping off loan transactions would ensure a clean credit history

With the news of the advent of credit referencing, many bank customers have resolved to stay away from credit transactions to preserve their credit history.

Keeping off credit transactions can only preserve your credit history if you are sure that owing to your financial constraints, you would not pay your debts promptly.  

Otherwise numerous credit transactions with positive repayment history will go towards enriching your credit history. The longer the history, the more useful is the credit report to lenders.