Good Financial Track Record Opens Door to Better Financing

Access to financial products in Mexico has significantly expanded in recent years. This progress is beneficial for individuals who maintain a good financial track record, as it can lead to better terms on loans, lower interest rates, reduced down payments, or even more favorable leasing/credit conditions. It’s essential to instill in younger generations the importance of managing financial commitments responsibly, as their financial habits today will directly impact their future access to these products. 

Financing is a crucial driver of economic development, enabling both individuals and businesses to access the necessary resources to grow, acquire assets, or achieve life goals, such as owning property or getting a car. According to the 2021 National Financial Inclusion Survey (ENIF), 27.3 million Mexicans between the ages of 18 and 70 have formal credit.

At BitCar, a Mexican digital platform offering car leasing and auto loans for new cars, we have seen that around 80-90% of our customers now have a record with the Credit Bureau. This is a significant increase compared to two decades ago when only about 60% of customers had a presence in the Credit Bureau.

Several factors have contributed to this growth in credit history records. These include technological advances, the pandemic's impact, and the rise of digital banks, such as Stori Bank, Nubank, and Klar, which have made banking accessible to previously underserved segments of the population. Many of these institutions offer credit cards with low limits (as little as MX$1,000 to MX$5,000 (US$52-US$258), making it easier for people to start building their credit history.

Today, appearing in the Credit Bureau is easier than ever. Actions like paying a telephone bill, electricity bill (CFE), or having a credit card automatically contribute to building a financial track record. If we manage these payments responsibly, appearing in the Bureau can be beneficial, as it grants access to better financing terms.

The Birth of the Credit Bureau
Mexico's Credit Bureau was established in the late 1990s as a result of the need for financial institutions to share customer credit behavior. This institution, regulated by the Law to Regulate Credit Information Societies, serves to collect and provide financial information to both banking and non-banking entities when they evaluate loan applications, ranging from legal entities such as an SMB to individuals.

The Bureau allows banks to assess whether potential customers are likely to honor their financial obligations, giving lenders a clearer picture of their reliability. Though the Credit Bureau is often perceived negatively, it is an essential tool for improving access to financing for those with good financial habits.

How the Credit Bureau Score Works

The "BC score" (Credit Bureau score) is a measure of a customer's credit behavior within the Bureau. It ranges from 456 to 760 points and reflects the likelihood of the customer defaulting on payments. The lower the score, the higher the probability of default; conversely, a higher score suggests a lower chance of defaulting and meeting obligations on time

In the past, a score above 600 or 650 was considered excellent. However, today, financial institutions look beyond the score itself. They consider the overall credit history, including payment behavior over the last five years, which gives them a clearer understanding of long-term reliability.

With the expansion of credit opportunities, many young people in Mexico now begin building their credit history as early as age 23 or 24, compared to previous generations who might not have accessed credit until their 30s. This is a positive development, but without adequate financial education, younger generations can face issues such as early delinquency.

Generational Gaps in Financial Literacy

There is a notable generational gap when it comes to awareness of the importance of financial health. Older generations, including early millennials, tend to be more aware of the impact that a good credit history has, while younger individuals often overlook the significance of maintaining a clean financial track record. This lack of awareness has led to growing overdue portfolios among younger consumers, as they may not fully grasp the long-term consequences of financial mismanagement.

Common issues that contribute to poor credit history include payment defaults, negotiated settlements where the full debt isn’t repaid, and cases where customers fail to make payments for over 12 months. All these factors negatively impact a person’s financial standing and credit score.

The Benefits of a Good Financial Track Record
Maintaining a solid credit history can unlock numerous financial advantages. For example, individuals with good credit scores can access loans with interest rates that are on average 500 basis points lower than those offered to people with poor credit. In practical terms, this means someone with a good credit score could secure a loan at a 15% interest rate, compared to 19% for someone with a weaker score.

Additionally, a good credit history reduces the need for guarantors or co-signers. When a guarantor is required, they share financial responsibility for the loan, and any negative behavior on the loan can impact their credit report as well.
 
For car loans, a good financial track record can translate into a lower down payment, and for leasing, it can mean reduced initial deposit requirements. These benefits provide more affordable access to vehicles and other financial products, helping individuals achieve their goals with fewer barriers.

The Credit Bureau should not be viewed with fear but rather as a powerful tool that can open doors to better financing options. By maintaining good financial health, individuals can take full advantage of the benefits that come with a positive credit history. It is crucial to educate younger generations on the importance of financial responsibility early on, so they can build the foundation for achieving their personal and professional dreams through access to affordable financial products.