The Credit Information System Act
Creditworthiness is an asset that a person, whether natural or juridical, must maintain. When emergencies happen or when an attractive business opportunity knocks at our doorsteps, the next thing that is needed is money in order to respond to the emergency or to grab the once-in-a-lifetime business opportunity. Creditworthiness is simply the creditors’ assessment of a debtor’s likelihood that he will default on a credit obligation.
At present, the capability of the financial institutions to do a credit and background investigation of a loan applicant has been enhanced through the establishment of a government-sponsored credit information system.
Republic Act No. 9510, otherwise known as the Credit Information System Act (CISA), was enacted to address the need for a comprehensive, centralized and reliable credit information system. It mandates certain entities to provide credit data and updates to the Central Credit Information Corp. (CCIC) with the end in view to (a) improve the overall credit availability of the MSMEs; (b) provide credit information at the least cost to those covered; (c) ensure protection of consumer rights; and (d) reduce overall credit risk, contributing to a healthier and more stable financial system.
The entities that are required to submit basic credit data to the CCIC are banks and quasi-banks, life insurance companies, mutual benefit associations and other entities supervised by the Insurance Commission, credit-card companies, financing companies, trust entities, investment houses with quasi-banking licenses, NGOs engaged in microfinancing, government lending institutions, and cooperatives engaged in lending activities. Aside from the basic credit data which includes the personal circumstances of the borrower, number of children, net income, residence, employers, etc., the covered entities are also required to submit negative information on the data subjects which would include past due accounts, defaults on loans, details of settlements of loans that are defaulted, foreclosures, adverse court judgments relating to debts, reports on bankruptcy or insolvency, petitions or orders on suspension of payments, corporate rehabilitation, pending cases, inclusion in bouncing-checks checklist, and cancelled credit cards.
Negative information is not intended to permanently stain the credit record of a data subject since it shall be retained in the CCIC database for not more than three (3) years from the date of negative information is rectified by payment, liquidation or settlement of debt.
The above information may be accessed by submitting entities such as banks, insurance companies, etc. A negative information is definitely a stain in your credit record which can cause the downgrading of your credit worthiness. Creditors may consider your negative information as a ground for denying your loan application or for increasing the interest rate because of additional risk.
If access to funds is as important as access to available blood supply for transfusion, then it is important that we must be careful not to have a negative information in our credit record. A simple past due account may lead you to a situation when you are unable to access funds at the time when you needed it most.