Credit reporting agencies (CRA) such as CTOS (in Malaysia) play a critical role in evaluating the credit-worthiness of potential borrowers in Malaysia. However, many borrowers are still clueless as to how CRAs work.
Asian Property Review talks to Dennis Martin, the recently appointed Group CEO of CTOS Data Systems Sdn Bhd, to throw some light on how CTOS works. Dennis is a 35-year veteran in the banking industry and has previously helmed one of the world’s largest credit bureaus – Experian Credit Services – for eight years.
1. APR: Are there other CRAs, apart from CCRIS and CTOS, that Malaysian financial institutions look at?
DM: Yes, there are a number of other CRAs in Malaysia, both local and international. Some are dealing with purely institutional clients, and some also have tools for the public. However, CTOS is the longest-running credit reporting agency in Malaysia, and as far as we are aware, we have the most comprehensive data sources in the country, enabling us to give a much clearer picture of an individual or a company’s credit history.
2. APR: What is CTOS modelled on? It appears to share similarities with the American model.
DM: CTOS was established in 1990 based on the visionary of its founders to close the gap in information asymmetry of the credit industry whereby the lack of information transparency had resulted in delays and even rejections of financing applications by prospective borrowers. With availability of information, we envisage that financiers are able to better assess the credit worthiness of credit applicants and subsequently make sound decisions. Individuals seeking credit are also able to access their own records via CTOS. This will help empower them to better manage their credit profiles, keep them up to date, and help them improve access to credit.
Over the years, CTOS has transformed itself to a data analytics driven credit reporting agency, modelled based on world-class organizations in more mature markets such as US and Europe. Nevertheless, whilst we are committed to delivering best-in-class solutions, these offerings are customized to the Malaysian environment leveraging on our deep expertise of the local requirements.
3. APR: Why is having zero record i.e. no previous borrowings such a bad thing?
DM: A credit history is a record of a borrower’s responsible repayment of debts. The gathered records are then used by lenders to determine an individual’s credit worthiness (an individual’s ability and track record of repaying a debt). By using credit history information, lenders can decide whether to extend credit, and on what terms. Without that information, lenders would be much more hesitant to offer credit or loans, as they would have no idea as to whether the person in question is likely to pay it back.
Of course, income is an important determining factor, however, lenders make credit granting decisions based on both “ability to repay” and “willingness to repay”:
a) Ability to repay a debt (income) – The higher the income, all other things being equal, the more credit the consumer can access.
b) Willingness to repay a debt (the credit report) as indicated by a history of regular, unmissed payments.
4. APR: Are there any instances where records are not fully updated or contain erroneous information hence affecting the accuracy of the report? How does CTOS ensure the accuracy of all its records? Is there any disclaimer as to the accuracy of its report?
DM: As required by the Act, all CRAs have to ensure that their data is relevant, up-to-date and accurate. CRAs are prohibited from displaying certain records older than 24 months. CRAs are also required to have redress mechanisms in place to ensure any disputes are resolved within 21 days.