To help them determine the creditworthiness of a prospective customer, business owners would run credit checks in Brazil. Besides, having a negative credit score shows that a customer may be unable to keep up with regular payments. Over here, you’ll discover all you need to know about Brazilian credit checks.
What is a credit check and why is it necessary?
Credit checks Brazil involve a process of verifying the creditworthiness of a person. It is done by looking at their credit report, which contains all the information about their debt and payments made over time.
The primary reason for doing a credit check is to verify that the person has enough money to repay the loan. Credit checks are also required for people who want to get a mortgage or apply for an auto loan. Doing credit checks involve the use of credit bureaus.
The Importance of Enlisting the Services of Credit Bureaus Brazil
In Brazil, a customer’s credit score is numbered from zero to one thousand. Serviço de Proteço ao Crédito (SPC), Serasa, Boa Vista, and Quod are the four credit bureaus operating in Brazil and are important to the rollout of the new rule.
The Central Bank of Brazil’s Credit Risk Center has given credit-related information since 1997. Moreover, integrating positive data into scores significantly enhances the traditional usage of this resource.
Quod is a relatively new player in the market; it was founded in 2016 with the conditional consent of antitrust authorities by the five largest Brazilian banks, each of which kept 20% ownership.
What Your Credit Report in Brazil Reveals About You and What It Means
The country’s Bureau of Statistics compiled official reports on Brazil’s economy. The bureau distributes multiple publications, such as the Consumer Price Index (CPI) and the Industrial Production Index (IPI). It also puts out a monthly report on consumer credit that shows how much credit was given to Brazilians and what it was used for.
The Brazilian Bureau of Statistics annually publishes a report on consumer credit that summarizes the country’s borrowing habits. In December 2017, they released a report. The information in the study covers all of 2016, offering a snapshot of the year’s borrowing patterns.
How Does the Credit Scoring System in Brazil Work?
In 2010, the Brazilian Association of Credit Reporting Companies introduced the Brazilian Credit Score System. Users of the system will be able to get a fuller picture than ever before of how creditworthy they are.
Some of you may have wondered how credit checks are done.
The credit check system they make use of relies on the following four elements:
- Your payment history contributes to your score (40 percent of the total). Credit scores are based on how well a person has paid back loans and credit card bills.
- A tenth of your total score is based on this element, which is based on your monthly income.
- Third, your age at the time of opening your first Brazilian account or loan (15% of the total) is considered.
- Total Debt: This represents 20% of GDP.
Understanding Credit Reports and the Important Role They Play
A credit report is a detailed account of a person’s financial history. Lenders use it to determine the creditworthiness of an individual or business. A credit report consists of information about where you live, work, and go to school; your current and past employers; any previous bankruptcies; how much you owe; and whether the person concerned paid their bills on time.
Credit reports contain three major sections: personal information, payment history, and public records. Personal information would include the person’s name, address, date they were born, social security number, and driver’s license number.
Payment history includes the amount of time before payments are due, the total balance owed, as well as any late or missed payments that have been made in the past. In public records, you can find any civil court judgments against you, like unpaid debts or bankruptcies, that the court did not clear.
Credit Bureaus Brazil
Since 2011, bureaus have used positive data, but adhesion is minimal owing to an opt-in system. Presidential Decree 9.936 was signed in July 2019, and banks began contributing data to bureaus in October 2019, along with retailers and utilities (gas, electricity, and telecom firms). In Brazil, credit bureaus went from binary to continuous with this change.
The first amendment is meant to make it such that all working-age adults in Brazil are automatically included in the “good payers” databases of credit bureaus like Serasa and Boa Vista, as well as the Credit Intelligence Manager (a credit bureau formed by the five largest banks operating in Brazil )
Thus, the term “automatic” refers to the unintentional incorporation of various types of personal data of Brazilian citizens, such as name, filiation, address, individual taxpayer identification number, payment information for public services (such as water bill or electricity bill), and financial information (e.g., bank transactions, number of credit cards, loans).
The second major shift is an effort to amend banking secrecy legislation so credit bureaus can exchange customer financial data freely and anonymously.
What the Future Holds for Credit Bureaus in Brazil Performing Credit Checks
Bureaus can help with financial inclusion by reducing information asymmetry between lenders and borrowers. Deeper economic systems lead to better, more steady development.
Accurate and full bureaus guarantee higher growth via less credit rationing and reduced borrower spreads. With more data, policymakers can use information economics to make decisions instead of just monetary policy.
As FinTech and BigTech businesses alter the financial sector, data is vital for analyzing credit risk and promoting lender growth. Bureaus face digitalization, new information sources, and customer-centric laws.
