EXPERIAN Information Services (Malaysia) recently released its analysis of consumer credit score trends and credit loans across different age groups between 1Q 2020 to 1Q 2021, within the duration of the first and second movement control order (MCO), via its i-SCORE consumer credit score assessment.
Based on the statistical analysis of a consumer’s credit files to derive a numerical score (ranging from 300 to 800), the scoring is typically used by lenders to determine the creditworthiness of an individual before approving or rejecting a certain application. A higher Experian i-SCORE indicates a lower credit risk to lenders.
According to the i-SCORE analysis of credit facilities such as credit cards, personal loans, overdrafts, mortgages, vehicle loans, etc., it was found that the volume of loan applications decreased across all age groups during the first MCO in 2Q 2020.
This was especially prevalent in consumers aged 51 and older, as many in this age group adopted a wait-and-see approach and preferred to defer taking new credit lines.
On the other hand, younger consumers aged 22 to 35 applied for more credit at the start of the second MCO (1Q 2021), which was primarily driven by a 37% increase of loan applications by those aged 22 to 28.
A similar trend was also observed for those aged 29 and 35, recording an increase of 22%.
“The low level of financial literacy, especially awareness around credit health, has always been a challenge for Malaysian youths. Our latest Experian i-SCORE analysis reinforces the urgent need to educate Malaysians about the importance of credit health. This is critical as the uncertainties around the COVID-19 impacted economy persists, both as a nation and on an individual level,” explained Experian Information Services Malaysia CEO Dawn Lai.
In light of this, Experian announced its ‘Know Money Campaign’ as part of its ongoing initiative to provide holistic education and empowerment to improve financial literacy in the country.
“Through this campaign, we hope to continually educate Malaysians about the importance of credit health so they understand that it’s the first and vital step to better personal financial control and management in the long term,” Lai continued.
Are moratoriums actually helping?
While moratoriums have helped consumers in the weak credit score segment, but it may cause for them to be at a higher risk for delinquency as moratoriums lift in the future.
From the study, it was found that the risk ratings have remained relatively unchanged for individuals rated in the ‘fair’, ‘good’ and ‘strong’ categories. However, the ‘weak’ rated individuals are most at risk for delinquency in general, as they are most often affected by poorer repayments.
Although the Economic Action Council (EAC) revealed that over 600,000 M40 households slipped into the B40 category since COVID-19 first started, the various repayment schemes have given temporary score boosts to the consumers.
Additionally, the banking sector’s moratorium measures helped with the normalisation of credit score performances, particularly for individuals with weaker scores.
However, it is important to consider that consumers with traditionally weaker scores may be at greater risk when Malaysia moves out of moratoriums, as they would have to pay greater attention to how to navigate through managing credit more so than ever.
Nevertheless, efforts have been made by financial institutions to help those significantly affected during the pandemic with the extension of the blanket moratorium.
This coupled together with financial institutions tightening of lending criteria during the pandemic, have resulted in artificially low short-term delinquency rates.
As the country moves out of moratoriums, consumers who had their delinquency rates artificially lowered would now need to be ready to manage their loans more proactively and improve their repayment performance, with the right knowledge, know-how and consistent tracking of payment performance.
On this, the Know Money Campaign plays a pivotal role in increasing credit health awareness and highlight the importance of maintaining good credit health in managing personal finance for the immediate period and into what may be a protracted and depressed economic environment.
“Personal finance has never been an easy topic to broach, but the situation that we are in today makes it increasingly complex to identity definitive indicators of consumer credit stress. It is of paramount importance that we help consumers and Malaysia to be more financially literate immediately and for the future,” Lai ended. – July 5, 2021
