QUESTION: I had a credit card debt that went bad and was later written off by the bank in 2019. I later settled the balance after a collector reached out to me on behalf of the bank. This was in December 2022. I am now being told after trying to transact business that I have bad credit since it came up on my credit report. I am asking if this is enough to make me fall into the category of having bad credit. Is there anything that I can do to have this resolved and not affect my credit?
FINANCIAL ADVISER: Bad debt stains badly. Sometimes it sears, and credit bureaux are making it more difficult for those who do not pay their debts to avoid being stained or seared due to their role in assessing and reporting on the credit worthiness of individuals. The stain on your creditworthiness can be removed, but it will take time.
As you have experienced yourself, not paying a debt can have far-reaching and long-lasting consequences – whatever the reason for you not paying or being able to service your debt. If you are wondering if finally paying made sense let me say that it did as it opens up an opportunity to get this behind you and be eventually able to get credit more readily. Your creditworthiness has only been stained.
On the contrary, not paying at all would have seared your creditworthiness because a debt that is not paid remains on a borrower’s record indefinitely, thereby not leaving room for the person’s negative creditworthiness to change.
You may be wondering why your credit card debt still appears on your credit report, so let us take a look at what a credit bureau does.
A credit bureau is an independent agency that compiles and stores data on the borrowing and payment history of consumers to assess their creditworthiness, which is expressed as a numeric or alphabetic credit score, the higher the better, used primarily by potential lenders with the accompanying credit report in deciding to extend credit, and on what terms.
The Credit Reporting Act 2010 provides for a credit bureau to receive the following credit information on consumers from prescribed credit-information providers: the amount and nature of loans or advances or other credit facilities; the nature of security taken in respect of credit facilities, including lease financing and hire-purchase arrangements; information as to financial means, creditworthiness, or history of financial transactions, including antecedents, and adverse court judgments, and the nature of any guarantee or other non-fund-based facility, and analysis of the above, including any conclusions as to creditworthiness.
It includes the following as credit-information providers: commercial banks, near banks, building societies, securities dealers, the Development Bank of Jamaica, insurance companies, the National Housing Trust, the sellers of goods under hire-purchase arrangements, credit bureaux, the publishers of information on suits and judgments for debt claims, and entities exempt from the Money Lending Act.
The legislation allows for disclosure of credit information to another entity inside or outside of Jamaica and for disclosure by any entity outside of Jamaica of credit information relating to any transaction that takes place, in whole or in part, in Jamaica. Credit information providers are required to provide only information that is reliable, cannot share information that is more than seven years old, are prohibited from receiving information from unapproved sources, and from disclosing information they know to be misleading or false.
The credit bureau prepares a credit report on an individual based on the information it receives from the credit-information providers. Even a debt that has been liquidated remains on an individuals’ record – for seven years after the closure date – and is factored into the credit score during that time. This is why that old debt is still a stain on your creditworthiness and is affecting your ability to incur new debt.
There is an outside chance that the debt you have liquidated can be removed from the records before the end of seven years, upon a request being made to the credit bureau by the lender, and this would depend on the circumstances surrounding the matter. You would have to take the initiative and ask the bank to do a letter stating the debt has been settled, and it would be up to it to make the request of the credit bureau.
In the meantime, although you will still likely face difficulty in getting credit, if you have other debts, make servicing them satisfactorily your top priority so that your credit score can improve. Additionally, pay your Flow and National Water Commission bills on time as this information is now reflected on credit reports and in credit scores.
The credit card is a convenient spending tool, but it has a deceptively harmful underbelly for those who do not use it well – a bad credit score – which can make it hard to incur new debt.
Oran A. Hall, author of Understanding Investments and principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and email@example.com