How credit-worthy are you? It pays to know where you stand
Updated: 2016-11-22 07:28
By Luo Weiteng in Hong Kong(HK Edition)
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A recent survey showed that about 80 percent of 759 Hong Kong residents interviewed were unaware of what a credit report was, and the information it included. Andrew Harrer / Bloomberg |
The usage of credit has long been commonplace in Hong Kong, where banking and private financing businesses are fully-fledged, but borrowers remain oblivious to their credit score - a financial lapse that may leave them unprepared in future.
This is shown in credit monitoring agency TransUnion's latest report, which found about 80 percent of 759 Hong Kong residents surveyed being unaware of what a credit report was, and the information it included.
A joint survey by the University of Hong Kong and online lending platform MoneySQ.com shows that more than 90 percent of 516 people polled had no idea about credit scores. More than 40 percent also failed to realize that taking out a loan or credit card meant establishing a credit profile.
"A credit score stands as a good reflection of one's ability to manage his or her finances, which tells a person's character, credibility and trustworthiness," said Lawrence Lo, Hong Kong-based director of consumer interactive at TransUnion.
"The significance of keeping a healthy credit rating goes well beyond our future loans and purchases, but points to more areas that we may fail to think much of."
According to Lo, credit scores are part and parcel of a person's resume, and can influence one's job applications. Hong Kong's labor market has seen a growing number of industries undertaking background checks on would-be employees, including credit checks, as employers want to ensure they hire someone who's credible.
The most affected job positions could include information technology directors with access to sensitive information, and banking staff with access to clients' database.
Credit scores can also prove to be invaluable for people who move from Hong Kong to establish themselves in another market. Very often, they are required to get their credit report as a reference when renting an apartment, looking for a job or taking out a credit loan.
More importantly, rampant identity theft and ID fraud highlights the pressing need for credit reports.
"It could be as simple as an error of a bank putting in the wrong information, or someone is taking out a credit card or loan on your name," said Lo. "If you get ahead of it and recognize it by regularly monitoring or checking your credit reports, you can fix the problem before you are actually in dire need of credit."
Lo said the city needs more education to dispel misconceptions about credit ratings, including the prevention of a cluster of behaviors that could negatively affect people's credit rating.
"Late payments and multiple credit or loan applications within a short period of time make the most common ones," said Simon Loong, founder and chief executive officer of Hong Kong-based online financing platform WeLab.
"For the latter, some individuals prefer to reach out to different banks and lenders to shop for the best rates which, however, may make them perceived by credit bureau as 'desperate' for cash and have their credit ratings downgraded."
Paying off the minimum payment on credit cards is another common misconception, Loong said, explaining that even though people have paid the minimum payment amount on time, their credit ratings would still take a hit since the full amount hasn't been paid off.
Lo also warned of the peril of leaving their "footprints" simply by making too many new credit applications, which may come at the expense of their credit scores. This also underscores the importance of checking their credit information regularly.
It's highly recommended that people take their credit report to the bank to discuss their chances of being granted credit products. This could also provide leverage in negotiating a better interest rate before actually submitting the application, Lo said.
Such a practice is important in terms of reducing uncertainty and saving people from leaving a footprint, as it's not rare to see individuals' applications rejected by some banks and lending institutions while approved by others without obvious reasons, said Lo.
However, he said rejection does not necessarily mean applicants have fallen into the category of poor credit ratings. It could just mean they are not the specific clientele that the specified banks or lending institutions want to work with.
"It boils down to the risk appetite and target market. If a bank or lending institution tends to be more conservative, or does not want to acquire certain customer segments, they might reject these applicants while others might approve them," Loong said.
Other than using the credit report as a reference, banks also take individuals' monthly salaries, the types of assets they own and other institutions they are banked with into consideration, Lo said.
But, the reality is not every individual in Hong Kong has a credit record to track, Loong added.
"The point is the longer your credit history, the more information you can provide and the easier it is for banks or lending institutions to understand what type of finance resume you have, based on your credit scores and credit reports," Lo said.
"This is especially true for the younger generation."
Another recent study from the University of Hong Kong showed that roughly one out of seven young people aged between 18 and 35 lives from paycheck to paycheck, or even beyond their means.
According to TransUnion, the younger generation is less likely to know their credit scores compared with their older counterparts, but more likely to be concerned about it.
"Typically, the younger generation is moving into the phases where they are to make big life decisions, all of which require credit and they should get ready for it," Lo said.
"So, it's never too early or never too late to start your credit files."
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Icons for various payment services are displayed along with the opening-hours sign inside a store in Hong Kong. Industry experts have urged the city to better educate the public to dispel misconceptions about credit ratings, including the prevention of behaviors that could negatively affect people's credit rating. Anthony Kwan / Bloomberg |
(HK Edition 11/22/2016 page9)