This month, the Department of Trade and Industry’s regulations for the removal of adverse credit information came into force and all registered credit bureaus will have to comply with the credit amnesty by June.
It means that all consumers with adverse credit information who have paid up their debt will have their names removed from credit bureaus.
As a result, this information will no longer be supplied by the bureaus to anybody who wants to use it in the course of a credit transaction, or for any other reason.
These regulations certainly present new challenges for banks, estate agents, landlords and tenants.
The credit rating models, which until now have been based on historical information, are going to be less detailed and the removal of consumers’ adverse credit records has introduced unknown risk. It is clear that banks will be tightening their approach to risk.
The problem for those extending credit or offering a property for rent is that it will now be far more difficult to differentiate between those who have benefited from the credit amnesty and those for whom it has made no difference — the prospective tenants or home buyers who have kept their credit records spotless.
As a result, consumers without much of a payment or credit history will most likely be treated as a higher risk.
However, lenders will still have access to a variety of tools, including a prospective bond-holder or tenant’s payment profile information displaying their payment history, which will remain on the credit bureaus’ records.
Consumers who are blacklisted — that is, those with judgments against them who have not settled their debts — will also be reflected.
In terms of rentals, estate agents can and will do other background checks, such as contacting credit references directly and speaking to former landlords and employers for information.
Experienced agents know what to ask past landlords and employers. Of course, landlords can do the same, but in my experience they often tend to risk going with their gut feeling about a prospective tenant.
Potential tenants also still have to submit bank statements and from these a wealth of knowledge can be obtained. Agents can, for instance, note whether prospective tenants regularly pay their rental first before other outgoings, or last and therefore late.
This helps an estate agent to understand what priority the potential tenant gives to rental payments.
Estate agents can also tell from bank statements whether prospective tenants have any bounced debit orders and whether they are constantly in the red.
All that said, it will still be a process for the industry to determine what systems work best.
Initially, the screening processes may take longer, but this is essential to ensure that people who buy or rent properties can and will pay for them.
My advice to prospective purchasers and tenants is to take advantage of the one free credit check everybody is entitled to a year to ensure that what is reflected on your payment history is in fact correct, and if not, to get it fixed because it will become one of the major yardsticks by which your suitability for credit will be measured.
Consumers run their one free credit check a year through any registered credit bureau.
The new regulations also make it far more critical to prospective bond applicants to keep their credit affairs in good order. In other words, pay back all lines of credit in full and on time to prevent any legal action being taken and any blacklisting occurring.
Purchasers who are already in the process of buying a property will have to complete their offer to purchase and then possibly wait a little longer in the next month or two for that all-important credit approval to be granted.
Geffen is chairman of Lew Geffen Sotheby’s International Realty