Often, buying a larger item, such as home appliances, or improving one’s living conditions, such as buying or repairing a home, requires quite a bit of financial outlay. This amount is not always immediately available and it takes quite a long time to accumulate. In such cases, people have the opportunity to take out a loan that suits their needs, but unlike fast loans, it is necessary for a bank or private credit institution to check a person’s credit history. If a person has previously used several services of this type and with different lenders, it is often difficult to gather all the information quickly. Therefore, a credit bureau is being set up to facilitate the retrieval of credit history information.
A credit bureau is a single register or database,
It collects, stores and processes information about the ability of individuals and companies to meet their credit obligations. However, the main task of a credit bureau is to collect information on past credit liabilities as well as their performance and debts in one place. It also includes information on arrears or utility bills. Information about the credit history of individuals and smaller companies can be obtained from members of the credit bureau, who have a contract with the credit bureau to receive this type of information. As a result, receiving a credit history from a prospective client will enable a credit bureau member to assess a person’s solvency more quickly, as well as to assess the risk that a borrower will be unable to repay.
The credit bureau also plays an important role in improving the economic situation. A properly designed credit bureau can solve a variety of economic problems. It acts as a regulator of the lending market. Allows credit bureaus (mostly companies) to assess risk, thereby helping to avoid losses. Consequently, the money used to pay off receivables will be used for various investments, which will enable not only the companies themselves, but also the economic situation of the state to develop.
The credit bureau benefits all parties – not only companies and lenders, but also borrowers. With a focus on credit history, lenders can make better deals to motivate regular individuals and companies to pay off their credit. In other words, the lower the potential customer’s credit risk, the more favorable the terms and conditions are. This gives borrowers a greater incentive to maintain a positive credit history. The credit bureau mechanism provides less losses for companies and individuals. By providing an objective assessment of a person’s ability to pay, the credit bureau will reduce the number of people who may have problems repaying their credit and, as a result, cause business losses.
The Credit Bureau Act and the Personal Data Protection Laws are responsible for the security of the data collected at the credit bureau.
The credit bureau must inform the individual in order for the company to receive personal data about its credit history. This way, a person will definitely find out who has requested information about their credit history. In addition, the natural person will also be able to control for himself whether the information provided by the credit bureau is correct and up to date. If something goes wrong, you can correct the mistake by going to a credit bureau.
In order to obtain information about the credit history of a natural person, a credit bureau member must also state for what purpose this information will be used. A credit bureau may only disclose information about a person’s or smaller company’s credit history to provide an opportunity to assess the creditworthiness of the individual or company. Such information shall not be disclosed for other purposes. In cooperation with the credit bureau, its member must also report on his own account. In other words, data are exchanged between the two parties.
If the credit bureau fails, there are several risks.
- Firstly, one of the risks is data security.
- Secondly, the activities of a credit bureau may unduly restrict both consumer rights and the interests of the state.
- Thirdly, it is precisely the likelihood of conflict of interest that poses the greatest risk. Conflict of interest can pose a threat to the market as it affects all parties involved.
However, a successful credit bureau can improve the economic situation in several respects.
- Firstly, the cost of credit resources is falling. The fall in prices is influenced by the fact that assessing creditworthiness is more efficient and less expensive. As a result, competition in the credit market is increasing – more profitable and cheaper services are being offered.
- Second, the operation of the credit bureau also reduces the borrowing itself. Due to the objective assessment of solvency, loans can only be taken by those who are able to repay them. Individuals or small businesses with a high credit risk are more likely to receive a loan refusal from a lender.
- Third, loan repayers are disciplined.
- Fourthly, a credit bureau can detect financial fraud, such as borrowing for another’s name, and limiting taxpayers’ chances.
- Fifth, export is encouraged.
- Sixth, since this type of information may be requested by government officials who consider the need for benefits and social security, it reduces the likelihood that the social budget is unduly distributed and the money goes to people who do not need it.