June 2021

The ‘Cornwall Consensus’ and what it means for credit bureaus

From a credit bureau perspective, a close partnership between government and business has always been essential to ensure the economic goals of a country are achieved.  It was therefore interesting to see this relationship being promoted as part of the ‘Cornwall Consensus’ last week at G7.

Gillian Tett of the Financial Times was discussing this concept in a recent article which considered the ‘profound, reset under way of the relationship between business and government.’ Tett describes the change by which ‘companies were regarded as independent actors competing with one another, without state involvement,’ to a relationship which would result in more of a ‘“partnership” between government and business.’

From a credit bureau perspective, this is a familiar concept and one that has been central to the proliferation of bureaus across the globe over the last 15 years. It has been very successful in ensuring that emerging markets have the necessary financial infrastructure to support the growth of MSMEs and SMEs, to provide banking stability and deliver access to regulated financial services for all rather than it just being the reserve of the wealthy middle classes.

Private international investment is at the heart of this partnership with government by creating a sturdy financial infrastructure and sharing technical knowledge with local institutions. This is closely overseen and regulated by the governments and central banks with further support given by the World Bank. Creditinfo has been one of the leading global experts that has made significant investments in setting up new credit bureaus in green field markets under the regulation of local central banks.

The support of governments has been critical to accelerate access to finance for the “invisible” unbanked by introducing regulation to require the inclusion of “alternative data” such as utility data and mobile or nano loans. The benefit of this is that it enables a broad section of the population to create a financial footprint upon which they can build a credit history for the future. This was further endorsed by recent research from the PERC group.

The relationships between businesses and governments should see the development of new solutions to support SME and MSME growth as companies of this size are the backbone of many economies, especially in developing markets. Government departments will often have registers of companies which can be used in supervised environments to facilitate improved assessment of loans or credit making it faster and easier for SMEs to access financial support.

Government-investor partnerships may be seem like new vision emerging from the pandemic when state support was essential, however, for investors like Creditinfo that have been working within such a framework for many years, it is a proven method to achieve social, economic and business goals.

How to build an impeccable credit history

Within the first days of our lives, we are all issued a birth certificate which becomes the first document of the pile that we are to collect during our lifetime. Birth certificates are followed by passports, then graduation certificates, college or university diplomas. Reaching the age of majority entails, among other things, responsibility not only for one‘s professional career, but also for financial decisions which are reflected in the credit history. In other words, credit history is a yearbook of one‘s financial obligations, which is read by banks, leasing companies or other institutions in order to assign you to the categories of either reliable or less reliable clients and decide whether they are willing to accept you for credit.

No Credit Without Credit History

According to the surveys, more than half of the adult population of Lithuania are active users of credits to finance purchase of the real estate, vehicles, household appliances, furniture, PCs, phones, etc.

To get a credit, you apply to the banks or leasing companies. They first look into your credit history which shows how well you performed our financial obligations in the past, including consistency of timely payments for electricity, telecommunication services or garbage removal, also timely repayment of other credits and any overdue debts.

A good or bad credit history determines whether you will be accepted for credit to buy a new refrigerator instead of an old broken one, whether sellers will agree to sell you a new phone just after signing an agreement on payment in installments over the next two years. If the credit history is sound, you can expect the most favorable conditions and trust of the seller. A poor credit record means that you may have to pay the entire amount at once.

A History of Amounts and Discipline

The credit history reflects two types of information. The first one is an account of financial obligations, credits in the banks, consumer loans from credit institutions or peer-to-peer lending platforms, leasing, etc. Lenders use this information to assess the client‘s budget sufficiency, i.e., the percentage of income spent for servicing the existing debts. The second type of information is the track record of repayment of debts indicating the discipline of making payments for credits, mobile phone, internet, cable TV and other bills.

Banks Favor Positive Rather than Empty Credit History

The staff of the credit bureau is often asked what a good credit history is. One may think that lenders favor those who never had a loan, leasing or credit card, and never delayed payments to service providers, hence their credit history is empty. Yet the lenders‘ approach is different. On the one hand, an empty credit record may indicate that you had no need to borrow or to buy on lease in the past. On the other hand, who is more trustworthy: a client who repaid his lease or loan in time, or a person who never had any financial obligations? A survey conducted by “Mano Creditinfo“ revealed that banks tend to be more favorable towards clients who had financial obligations in the past as they are more predictable.

Financial institutions tend to trust clients with good credit history and offer them better conditions, such as a lower down payment, lower interest rate and more flexible repayment terms. For instance, Swedbank‘s Institute of Finances earlier advertised that good credit history may save up to several thousand euros in interest on home loans. Good credit history will save you up to EUR 500 on a loan for a EUR 5,000 worth car, or up to EUR 1,700 on a EUR 10,000 worth car lease.

Can You Fix a Bad Credit History? 

Yes, you can, but it will take time and effort. There are several factors that determine a bad credit history, including high financial obligations, excessive and unreasonable borrowing, borrowing to service outstanding debts, delayed payments and other. If your credit history contains any such events, you have to brace yourself for a hard time, as cosmetic adjustments will not erase or eliminate them. If you tend to assume too many financial obligations, you will have to reduce their number and curb your appetite for borrowing for some time at least. If you have any overdue payments, you are recommended to make the payments as soon as possible and never delay them again.

Financial institutions usually analyze the credit history of the recent 2 or 3 years, and the negative impact of the sins of the past gradually fades away over time. Thus, if you have a poor credit history and decide to change your approach towards your financial obligations today, financial institutions may still have questions about your past financial behaviour for a couple more years to come.

Mistakes to be Avoided

Information about the financial relations and obligations will accompany you throughout your entire life telling a story of either a high financial discipline or lack of it. If you decide to borrow, you must carefully assess your ability to cover the debt and think about the ways to ensure the repayment even if you lose your income. Negative records appear in your credit history very quickly, within a month from the day the payment was due. Erasing this record from your credit history will take years, though.

Aurimas Kačinskas,

CEO – Creditinfo Lietuva.

 Creditinfo invites the strongest companies to join the effort of making Lithuania greener

Green Parks of the Strongest Companies to Flourish in Lithuania

This year the Strongest will have an opportunity to contribute directly to the building of a greener Lithuania and to enter their names in the parks of the Strongest in Lithuania. Creditinfo shall plant a tree for each certificate awarded to the financially strongest companies. A new park of oak, maple, birch and linden trees will be planted in one of the busiest roundabouts between the Gerosios Vilties, Laisvės and Savanoriai streets in Vilnius this autumn.

The initiative of the credit bureau has received support from the Vilnius City Municipality. According to the Municipality, there are still many public areas in Vilnius which need to be planted, meanwhile the increasing population of the city  drives the necessity to create as many green areas as possible.

“We welcome the initiative of Creditinfo to contribute to the making our city more beautiful and we support their idea of planting trees at one of the busiest roundabouts that is crossed by tens of thousands of citizens and visitors of Vilnius every day,“ says Remigijus Šimašius, the Mayor of Vilnius. We are glad to see that the strongest companies in Lithuania make active contribution to the improvement of the environment around us.“

Creditinfo awards the Strongest in Lithuania certificates to the companies that are selected for their outstanding financial indicators, including appropriate payment of taxes, timely discharge of obligation towards employees and business partners, and sound financial discipline. Every year Creditinfo assesses businesses against over a hundred of different indicators and nominates up to 2.5 thousand of the strongest companies in Lithuania. Over 11 years of certification, the title of the Strongest in Lithuania has been awarded to over 20 thousand companies.

“This year the Strongest  in Lithuania certification follows the principle Strong Companies Make Strong Decisions. Society expects contemporary companies to demonstrate comprehensive leadership in all walks of life. It is extremely important not only to secure financial stability of a company, but also to put into practice social responsibility and take care of the public good,“ says Aurimas Kačinskas, CEO of Creditinfo Lietuva. “We invite companies to join the effort of building a stronger and greener Lithuania.“

According to the CEO of the credit bureau, the capital city of Vilnius has been chosen to be the first to see the planting of the Strongest in Lithuania park. The traffic in Vilnius is heavy, making the quality of the air a high priority, therefore the first Strongest in Lithuania park is to be planted in the busy Gerosios Vilties roundabout. In the future, Vilnius may be followed by other cities and towns, depending on the involvement of the strongest companies in the initiative.

The Value of the Certificate is Higher this Year

The CEO of the credit bureau points out that this year the companies awarded with the Strongest in Lithuania certificate have a strong reason to be proud of sustainability of their activity. “Not all businesses have managed to secure their financial stability during the pandemic, therefore this year the award of the certificate recognizes the ability of businesses to weather a crisis and flexibility to adjust to the exceptionally complex conditions,“ says A. Kačinskas. “To distinguish companies with sound financial discipline, we will have their names written on the special memorial stand to be put up in the park.“

About the Strongest in Lithuania certificate  

The credit bureau launched the Strongest in Lithuania certification in 2010, and this year counts the 11th season of certification already. The Strongest in Lithuania is the only recognized business credibility certificate in the Baltics with the longest history of existence. Over the decade, more than 15,000 Lithuanian companies have earned the right to use the certificate as a proof of their good financial reputation. Upon decision of Creditinfo Lietuva, this token of high credibility is awarded to companies with outstanding professional management practices, i.e. those that generate stabile income and profit, pay taxes and fulfil obligations to their partners on time, and have no debts.