Tweet
Let's borrow our way out of debt
Credit reports and unisex insurance
FRANKLIN JOHNSTON
Friday, February 25, 2011
Credit reports and unisex insurance
FRANKLIN JOHNSTON
Friday, February 25, 2011
OUR crisis at elections 2007 was debt. It won the JLP an election. Since then Minister Shaw has shown that salvation lies in borrowing to the hilt. The IMF may be to nations what the passage of Credit Bureau laws may be to individuals. Credit Reporting Agencies (CRAs) will soon be here and our lives will change. If it works well we may have unintended consequences which benefit us as they could start a revolution in accountability. You see, this article is about personal credit reports, not our Cabinet's profligate borrowing.
Top CRAs as Equifax and Experian allow us access to our own credit reports for free. The reports link debt, credit cards, hire purchase, mortgage, litigation, etc, for seven years and up and assess your credit score. Your credit (and reputation) can be messed up by error, identity theft, omission or your own actions. One start-up firm was denied loans as the founders gave it loans for software development, etc, and so it was insolvent on paper. I advised them to get the auditor to move the figure to equity for a positive profit and loss statement; refile with Company House and reapply for the loan. They got it! In big systems there is no personal contact as the credit analyst may be in India. The days of "who you know" are going. A CRA gives a good assessment of risk but there are wider implications for us.
A Credit Report (CR) is your financial life story, say, from the day you sign a student loan to death. My last report was 14 pages — birth, addresses, "financial associates", my electoral roll number to prove I am not transient; transactions, payment history, court cases; it even logs credit searches by others who are financially interested in me. Utility contracts too — they are not monopolies — so I cannot "owe and switch" for light as the new provider can see. Much has been made of the benefit of CRAs to banks. Why? Does our bad debt exceed the norm? No! But I see potential benefits for us and our nation.
What's the positive? The advent of CRAs may level the credit field; benefit the enterprising poor and strengthen our sense of responsibility. Check the following:
* A student loan is usually your first venture; if you mess with repayment you affect your ability to get a job, a visa, a contract, rent a house, get a mortgage and any loan.
* A student loan is usually your first venture; if you mess with repayment you affect your ability to get a job, a visa, a contract, rent a house, get a mortgage and any loan.
* We will now be more serious in financial and business plans and so be more successful.
* This system rewards the small man or the faithful who have paid their debts over the years. You get in the system by debt. Service it well and you will get credit based on your record even if you know no one or have "big fren"; handle loans badly and "yuh salt"!
* If you buy with cash you are doomed. Cash is "flash" but gets you no credit score. If you have house, car, etc, and have no credit history, you are under suspicion. Robbers, money launderers, tax evaders and the destitute pay cash. This is why I asked the ECJ to ban cash donations above, say, $5,000 to political parties. It can't be honest money!
* CRA is a modernising force. It will now drive you to get a credit or debit card. Take a small loan, even if you have cash because it helps your future credit. If you borrow $120 and pay it back over 12 months, the credit analyst now has a basis for thinking you may be trusted with $1m. Don't wait until you need the $1m, do it now. You pay £30,000 for rent; are "never absent never late"; this will help you. Our CRAs should log rent data as this is big bucks for a poor man. It also means a serial rental robber will not be able to fleece owners as they can get a CR on him before they rent him a property.
What's the downside? You can't walk in and get loans based on your name or looks.
* Put on a sexy dress, shed a few tears or dress in your suit and talk slick, but it will not get you a loan. The banker will be fired as the CR which informs his decision is the first thing audited when you default. Your loan's future is yours, not your father's, your colour or your banker's. Your credit history is. The CRA collects data all over and it never forgets!
* What about privacy? From birth to death very little is private. Some personal stuff is not publicised but it's not private. Just that no one is interested -- not yet! What about freedom of information?
* What about privacy? From birth to death very little is private. Some personal stuff is not publicised but it's not private. Just that no one is interested -- not yet! What about freedom of information?
* Can a CR cramp an entrepreneur? A guarantor? A surety? It may! Is it better to know the person you back made a mistake than not know? If you are a "deadbeat dad" the child support you won't pay will be on your CR too! Pay up! CRAs will change the way we handle money, credit, how we relate and do business. Since the demise of the personal banker - the man who knew you as a schoolboy, your dad; when you got a scholarship, your first job; he gave you your first loan for a little car. Back then the enterprising poor had a champion in their fiscal corner; but things got corporate; no one noticed the maid's kids were bright, she paid Courts' furniture bills on time - she was responsible! Today we see cash, not character. The crook pays cash. The well-off do not carry cash -- they sign and the rich don't have a pen. We do not reward prudence and fiscal responsibility as no one kept score. The CRA will keep score, things will change and many small people will have good credit scores and the cash rich be exposed. Unintended consequences indeed!
Car insurance
The European Court's ruling that it is discriminatory to charge women lower premiums than men opens a Pandora's box. It will affect us and radically change some financial and other services. Some companies in the UK insure women drivers only and may soon be closed. Logically, women's premiums should increase dramatically and men's reduced; but firms may just jack up women's and keep men's the same. It may also impact pensions/annuities to the advantage of women and affect some medical insurance. If gender bias is made illegal in the EU it affects our reinsurers in the UK, EU aid and other things. Get ready for changes! Stay conscious, my friend!
Dr Franklin Johnston is an international project manager with Teape-Johnston Consultants currently on assignment in the UK. franklinjohnston@hotmail.com
Comment