FINANCIAL NOTEBOOK

Q. I am a single woman in my late thirties, with a good career. I have no credit cards and always try to live within my means, so I never buy on hire purchase and have never taken a bank loan. So imagine my surprise when I applied for a mortgage and was told that because  I had little or no credit history my request might take longer than usual. I feel like I’m being penalised for not having any debts?
Carolyn, La Romain

A: Credit history is not the only factor a banker would take into consideration in granting a loan. Yes, having a good credit history gives an idea of your credit-worthiness on loans you would have taken in the past. But, the past is not always an indicator of the future and an astute banker would be more concerned about your debt servicing ability over the life of the new loan you are applying for. He or she would be more concerned about whether you are permanent in your current job, your performance level and future career path. In other words, the banker has to ascertain if there are any circumstances over the life of the prospective loan, which may hamper your ability to pay. Therefore, the future may be of greater relevance than your past experience with loans, so don’t think that you are at a disadvantage for not having a credit history. In fact, having no debt is a significant plus in the mind of any lender as it means that you do not have a high level of fixed debt commitments every month. This signals that you may be better able to service any debt which you may be granted. While it may take a longer time to process your application given that you have no debt experience, it does not at all reduce the prospect of you eventually being granted the loan. So to say that you are being penalised for not having a credit history is incorrect. It may take a little longer but if you are found to be credit-worthy there is no reason why you should not be successful. Given your frugality and budgetary discipline you seem to be a good candidate for this loan.

Q. I finally got approved for a credit card. So I’m going to treat the family to an overseas vacation. I plan to use the card to pay for airline tickets, hotel reservations and spending money. My wife’s father tells me I’m abusing my credit card. I don’t see it.
What’s wrong with my vacation plan?
Geoffrey, Barataria

A: If you are taking your family on a vacation only because you were just granted a credit card then your father-in-law could be right in that you may be engaging in consumerism. But, if you are using the credit card merely for transactional convenience i.e. not having to carry around large amounts of cash to pay for the necessaries then using a credit card can make sense. It’s very important to remember that a credit card attracts an extremely high rate of interest and so it is not a cost-effective way of long term financing. So you should only be going on a vacation if you have the cash ready to pay off whatever amount you use on the credit card. This cash could come from your own savings or from a vacation loan from the bank at a much lower rate of interest than exists on your credit card. In essence, the credit card should merely be an instrument of convenience and not a way of financing expenditure. This is a grave misconception amongst consumers in Trinidad & Tobago and the world over. A lot of people chalk up huge balances on credit cards living beyond their means. When the balances cannot be easily paid off, the debt on the card attracts exorbitant interest payments, which may become extremely burdensome to pay. In fact, in the United States this problem has spawned a host of new businesses, which seek to help individuals free themselves of the burden of credit card debt. Beware of this trend and do not become captive to it.

Q. What systems exist in the Trinidad and Tobago Stock Market to protect investors from insider trading?
Lennox, San Fernando

The Securities & Exchange Commission is the regulatory body responsible for the local stock exchange. They have developed rules and regulations, which make insider trading a prosecutable offence. The penalties for such activity are significant and so apart from having to hand over profits arising from such illicit activity, the offender faces the full extent of the law. This penal code thus acts as a significant deterrent to individuals contemplating such activity. Furthermore, in recent times, the SEC has also been extremely forceful about insider trading and has published newspaper ads warning about the penalties for such an offence and what one should do to avoid becoming unwitting offenders. The cardinal principle in trading is that if an individual comes into contact with private information which can have a significant effect on the stock price, that individual must make every effort to have that information revealed so that all other investors can benefit from this information at the same time. However, if an individual comes into contact with non-material, non-public information and combines this with material public information in developing a theory about stock prices then this is not construed as insider trading.

Questions can be sent to : PO Box 1830, Wrightson Road, Port-of-Spain.
Email :cmmbsecurities@mycmmb.com