How Good Is Your Credit?
When you promise to pay tomorrow for the car or fur coat you buy today one of Canada’s 74 credit bureaus is usually asked to dig out a file with your name on it. It tells such things as how you act toward your debts, your job and if you’re happily married
LAST WINTER a Montreal family moved to Vancouver and applied at a store there for a charge account. The request was refused. “We can’t open a ‘charge’ for you at this time,” the credit manager told the man of the house. “We can offer you a revolving account, with a limit of $100, on which you can pay each month. Of course, there will be a carrying charge.”
The customer protested that he preferred a regular charge account without interest—like he had in Montreal.
“I’ll be frank with you,” the manager said. “You were considered ‘slow pay’ in your charge accounts back East. At one time, too, you owed several months back rent. And in 1940 a finance company repossessed your car for late payments.” The customer stared at the credit manager. “What else do you know about me?” he asked.
Actually, the credit manager knew, or could find out in a matter of days, how many times m the . past 10 years this man from thousands of miles away had changed his job, his residence or his wife; whether he had ever been arrested, the approximate total of his wealth or indebtedness, whether he had ever defaulted on an installment purchase, and his general reputation.
The store at which the new customer applied for credit, belongs to a bureau in which most of the merchants, finance companies, banks and fuel companies in that city pool their information about everyone who ever bought on credit or borrowed money. In turn, that local credit bureau is associated with 73 similar bureaus in every Canadian city from Halifax to Victoria. The result is a husky chain of information about the financial record, and a good deal about the personal background, of almost every Canadian family. In fact, the credit bureaus probably possess more detailed information about more people than any other non-Government agency in the country.
If you’ve ever had a charge account, bought on installment or arranged for credit to fill your coal bin, it’s almost a sure bet that your record is on file with a credit bureau in your town. The Credit Bureau of Greater Toronto has files on 800,000 people, 500,000 of them active credit customers in the city and its environs. Since the entire population of the area is 1,300,000, obviously just about every family is on the list.
Most people at some time have participated in some type of credit transaction. About 45% of all merchandise sold today is on credit and the average Canadian family currently carries about
$500 worth of debts in the form of charge accounts, installment purchases, fuel and other unpaid bills.
Furthermore, if you’ve lived in more than one town, your financial habits likely are on record in each place.
The main purpose of this wide-probing index, of course, is to help merchants decide if you’re a good risk. But more and more employers are now calling on credit bureaus for information on the personal character and background of job applicants—how they got along with previous employers, their education and ways with money. An accountant applying for a job was startled recently to find that the personnel manager interviewing him even knew about the ailment which had kept him out of the Army 10 years ago.
The bureaus sometimes are used to help locate missing persons. Merchants and professional men often call on them to help collect unpaid bills.
But no one else can buy a report on you from the close-mouthed men who manage Canada’s credit bureaus. The ethics of their profession require strict secrecy about your financial condition to anyone except the people who normally extend credit in their business—merchants, doctors, insurance companies, hospitals.
Canadian credit and finance agencies run their business on a highly confidential basis. For example, Canada’s banks are traditionally reluctant to discuss their clients’ affairs. In the United
States, by contrast, even newspapers can often find out from a bank the size of a man’s account.
The chief source of intimate details about your financial record is the merchants themselves. In many cities the bureaus are co-operative enterprises owned by the merchants. Others are privately owned and simply sell a service to the merchants. Ifi some cases members pay an annual fee, in others a fee for each query. Merchants in many cases have an agreement to keep the bureaus posted on credit experiences with their customers. Even in cities where there’s no such agreement the merchants provide the bureaus with credit information on request. In cities where there are credit bureaus all except the smallest businesses usually belong to them.
Another source of information is the banks. More people give a bank as reference when they’re buying on credit than any other contact. What the banks tell bureaus varies according to their policy; some won’t yield any information, or simply say their experience with you has been good or bad. Others may give a clue to the size of your account—say, a “high three figures” ($750 $900) or a “low four” ($1,100-$1,300).
Most landlords will tell the bureau how much rent you pay and how promptly. Your employer is another source. He may be asked how long you’ve worked for him, your salary, and so on. The personnel or payroll department answers the
query without a second thought, since almost everyone in the firm, including the boss himself, usually has been checked at some time or other in the same way.
Most credit bureaus claim they interview a man’s neighbors only if they can’t get their information from regular sources. The aim in this case, they say, is to “identify” a family which hasn’t appeared before on their files—how long it has lived in the district and where it lived before. The bureaus say they try to handle these interviews carefully, without giving away the fact that your shiny new refrigerator is being paid for by the week.
The bureaus also scan newspapers and court records for items which may affect credit. Bankruptcies, arrests, marital troubles—all furnish data for those omniscient files.
But the credit bureau never actually decides whether you get credit. It’s up to the merchant or bank to say whether the information provided by the bureau makes you a sound risk. Some merchants may be more lenient than others. And those who are strict aren’t necessarily crusty old codgers; they may be trying to keep down operating expenses, and consequently the prices they charge you. Credit men will tell you that easy credit isn’t necessarily cheap credit.
In making up a report, credit men are apt to study you on the basis of three C’s:
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How Good Is Your Credit?
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of willingness to pay your debts.
Capacity—your ability to pay up, as indicated by your income in contrast to your living expenses and the amount of debt you already owe.
Capital—the assets you own which can guarantee payment.
But various credit sources look at the three C’s from quite different, angles before they decide to entrust you with their merchandise or cash.
A banker is usually most conservative, because he’s lending other people’s money and lends it at the lowest rate. He’ll be interested in your general reputation, financial record and employment stability, but especially in what other assets you have that will ensure the safe round trip of those funds.
A merchant is more interested in selling goods. Credit is one of his most successful tools for doing it. Because his profit on the goods helps cover the risk of selling them on credit he is more liberal with credit than a bank. He’ll check with the bureau primarily to see what your record of payment is, and that you don’t already have too many outstanding debts.
A small-loan company will be most interested in your employment record and domestic affairs. But these lenders will more often talk to your wife than your employer. They’ll send a man to visit your home. The ostensible purpose is to see the household goods on which they take a chattel mortgage to guarantee you’ll repay the loan. Actually the visitor will be more interested in whether your house is well kept and you and your wife seem to get along well. The loan experts know that a family which takes pride in its home will break its neck to pay back, since otherwise the chattel mortgage entitles the lender to seize the furnishings. The loan company really doesn’t want the furniture and rarely seizes
it, since it can recover little from it. It’s the marital situation that counts with this lender.
Of all people who give credit, doctors are most lenient and suffer the biggest losses. Even dentists are better businessmen—perhaps it’s because a dentist knows roughly what your bill will total before he starts. During the depression of the 30s it was common for doctors to collect only about 50 r'( of their fees, and some had to go on relief because they collected so little. Even today some doctors lose 10 % of their fees through non-payment. In comparison, the larger stores average only one half of one per cent loss on all the credit they extend, and smaller stores just a little more.
Your File Follows You
The far-flung bureau system reports your credit standing to members with rare speed. An hour after you leave your application at a store or bank the bureaus can have a report on you. At one Toronto credit bureau, when a store phones your name a clerk immediately gets out your file, notes at which stores you have accounts and queries them by phone or two-way telautograph. She then calls the enquiring member and gives a verbal report summarizing your past paying habits and current indebtedness. The merchant thus knows not only your record but also how deeply you’re in hock now, and whether or not this new debt might scuttle you completely.
If a written report is requested in the case of a large credit purchase, or by an employer, insurance or mortgage company, it may also cover such items as your residence stability, employment record and marital status, character and estimate of financial worth.
Even if you just breezed in from a small town where there’s no bureau the credit agency can get a quick reading on your financial character. The Associated Credit Bureaus have
divided Canada into 74 territories, each centred on a major bureau. Each bureau is responsible for selecting and training correspondents in its territory. Some former fellow townsman thus sends on the desired information.
Consumer credit ratings ebb and flow with your own personal fortunes. They don’t lend themselves easily to the coded symbols used by trade credit bureaus which rate the credit standing of businessmen themselves. But occasionally the bureaus do rate credit customers by symbols. In case you ever come across these letters adjoining your name you’ll know what they mean:
A: Top credit rating.
B: Get a detailed report before
C: Don’t sell him!
D: No experience with this appli-
Such ratings are never permanent. The only coded symbol regularly used to designate a credit rating is “P.A.A.,” meaning “paid as agreed.” That’s a top rating on any credit transaction. If you’ve got that next to your name you can walk into almost any store, carry out a load of merchandise and pay later.
Your credit rating is a really vital matter to you. A good rating not only helps you get credit when you need it, but also gets it for you at lowest cost. A slow’payer often has to pay a higher interest rate. Your rating sometimes affects your job chances, and also may determine whether a trust company will accept a mortgage on your house, an insurance firm your application for a policy, or an apartment-house manager your bid for a flat.
Watch Those Charge Accounts!
The manager of one large bureau, who like all credit men has a passion for anonymity, says there are two basic ways to keep your credit rating good: 1, Pay your bills; 2, If you find yourself running behind, get in touch with the people you owe (before they get in touch with you), explain your predicament and ask for an extension of time, or a reduction in the amount you pay each week or month.
If you’re staggering under a load of unpaid bills or suspect that past incidents have marred your rating (an infrequent lapse need not worry you if you’ve been fairly prompt), it’s a sound idea to visit the credit bureau itself and explain why you got into a jam. One man found he had contracted too many obligations and went to the local bureau. He laid his bills on the table. The manager was impressed. Together they toted up the bills, estimated the minimum amount the family needed for living expenses and earmarked the rest to pay off the bills. The manager then phoned the creditors and recommended a schedule of small regular payments for each from the amount the man could reserve from his income. The manager even persuaded a fuel-oil company to allow the family additional credit.
That doesn’t mean the family’s lapse didn’t go into that all-knowing file. But so did the fact that the man had voluntarily sought an arrangement with his creditors.
The same credit manager had less success with another man who cried
for help in fighting off his creditors. Every time the manager helped out, the man’s wife would send her charge accounts on a new flight. Since the man was responsible for his wife’s debts, and apparently had no control over them, the manager finally had to give him up to the bill collectors.
A wise family cleans up unpaid bills before moving from one town to another. If you don’t have the money it’s best to tell your creditors where you’re going and what you will do about their bills. Otherwise, you’ll start off with a bad credit name in the next town.
Most people are honest and pay their bills. Then why the elaborate checking on their financial biographies? Because there’s a small persistent minority which doesn’t pay its bills, either intentionally or through consistent mismanagement of its money. If you want to look at it this way, the credit bureaus help the honest and reasonably punctual majority get credit without red tape, embarrassment and the long investigation the individual merchant or banker otherwise would have to make himself.
According to Carl Flemington, manager of the Toronto bureau and former president of the Associated Bureaus of Canada, quite honest people sometimes get into credit jams because they’re over-optimistic about future income and they find it easy to spend anticipated funds by buying on credit.
IIow Much Can You Owe?
There are still charge accounts of course. Merchants encourage them, not only as a convenience to customers but because charge customers seldom shop around for bargains as much as families buying for cash; merchants find them more profitable. But there’s a limit on how long you can let a charge account run without making a move at settlement in full; 60 days usually is considered long enough.
“Revolving credit” is a comparatively new type halfway between a charge account and an installment plan. The merchant sets a limit, say, of $90 on your credit, and you agree to pay $15 a month. As soon as you pay off part you can get more goods to restore your debt to the specified limit. You do pay a credit charge, although it’s often less than on an installment plan.
How much debt can a family safely carry? A reasonable limit might run anywhere from five to 20% of annual income, depending on the family’s situation. The variables include the number of children in the family, whether it has certain fixed expenses beyond its control such as unusual medical costs and high rent. The most conservative lenders and merchants like to see the average family limit its debts to about 10% of income.
The average debt for every man, woman and child in Canada in 1949 was $120, and the per capita income that year was about $950 -obviously the average family has been running over the 10% ceiling.
If this includes your family you can be sure Canada’s credit bureaus know about it. And you can be sure, too, they’re constantly checking on how you treat your present credit to help their clients decide whether to give you any more in future. if
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WE FOUND THE LAST WILD WEST
By Richmond P. Hobson, Jr.