In a recent series on credit information reporting, the Asahi Shimbun explained the plight of a young Kanto woman who had applied for a credit card last March. The card she was interested in offered discounts at selected stores and could be used as an IC card for public transportation. It also had an attractive point system. Almost all her work colleagues had the card and since her financial particulars were the same as theirs she didn’t think she’d be turned down, but she was and the rejection confused her. She had one other credit card, which she had always paid on time. When she called the credit company that refused her they said they couldn’t give her the reason for the rejection.
A gift campaign notice that comes with a monthly credit card statement
Then she received a letter from Softbank Mobile, her cell phone service carrier, which said that due to a mistake her payments had been reported to a credit information (CI) company as being delinquent. The period of her false delinquency, she realized, fell during the same time that she applied for the credit card. In the letter Softbank said that it had corrected the mistake with the CI company, and when she applied for the card again after a while, she was approved, but when she tried to find out why they had changed their mind the company again said they couldn’t tell her.
Such situations are not uncommon, but since credit card companies are not obliged to give reasons for rejecting or accepting customers, most applicants have no idea that these problems even exist until it’s too late.
In Softbank’s case, the carrier was actually alerted to the “mistake” last March when customers pointed it out to them. The company investigated the claim and found that between December 2012 and March 2013, about 63,000 customers were reported to credit information companies as having been late with their payments, even though they hadn’t been. The reason for the mistake was fairly complex, and common enough for such a reporting system. All of the affected customers, including the woman profiled by the Asahi, had purchased their terminal devices — meaning their cell phones — through a revolving credit plan. Moreover, they accumulated points over time that could be redeemed as credit through the revolving payment system.
Softbank reported all this information to the relevant CI collecting company, but because of a computer programming redesign that took place late last year the settings that translated points into credit did not work correctly, so people who had paid for their cell phones through points were incorrectly flagged as being delinquent as far back as 2009.
When a financial institution screens someone to determine if the person is credit-worthy, they use CI from various sources: the Credit Information Center (CIC), which mostly works with credit card companies and revolving payment plans; the Japan Credit Information Reference Center Corporation (JICC), whose members are consumer loan outfits; and the Japanese Bankers Association, which collects information related to bank loans. When someone applies for a credit card or a loan the institution requests credit history information from the relevant organization. All lenders and retailers who offer revolving payment plans are obliged by law to report credit histories of customers to one of these CI organizations.
CI includes personal data, such as name, address, birthdate and nature of the transaction; as well as “payment information,” including payment trends and the balance of the account. As long as the customer pays on time, no information is recorded, but when the customer misses a payment the CI collecting company receives a notice of there being an “unpaid situation.” If that situation continues for 3 months straight, the payment situation is reported as being “irregular,” which means the customer is placed on a blacklist.
Being on a blacklist does not necessarily mean that the person will lose his or her credit card or be denied a loan. The financial institutions who request this information for screening purposes can interpret it however they want, but generally if an irregularity is persistent the person’s credit history will be tarnished. Information about irregularities stay in the customer’s credit history for five years, even if the loan or credit bill has been paid off. However, if the irregularity is the result of a mistake on the part of either the company reporting the credit information or the company collecting it, then it is immediately removed from the record.
The problem is that often such mistakes don’t come to light, and while credit reporting companies and lending institutions or credit card companies are not obligated to reveal reasons for rejections to applicants, the credit collection companies are. For instance, if you have a question about your credit card history you can call CIC and, for a fee (¥500-¥1,000), they will give it to you. It’s the same for the other two organizations, depending on where you have borrowed money. An expert in the Asahi article recommends that anyone planning to take out a large loan check beforehand with CI collecting organizations to find out whether or not there may be problems.
The Asahi also reports that an increasing number of young people are showing up on blacklists due to their phone bills. CI, it should be noted, has nothing to do with paying utility bills, a matter that is strictly between the utility and the customer. In the case of cell phones, CI is only reported on people who have bought their phones through revolving payment systems, which are usually attached to phone bills.
The problem here is that many young people forget that they are paying back money loaned to them for their phones. They think that they are paying their phone bill, so if they’re late with a payment they simply have to pay a small penalty. They don’t realize that their credit history is being damaged in the process. In many cases, in fact, it is their parents’ credit history that’s being damaged, since some parents cosign for their kids’s cell phones. It gives them more reason to monitor their cell phone usage.