Service overview – KHR Consumer
The KHR Service is a credit information database operated by Hungarian banks and credit institutions. Banks use the KHR to share their customers’ credit data with one another. They do so to provide one another with information during the credit assessment process in order to facilitate access to loans by debtors with good credit histories, protect customers against the dangers of over-indebtedness, and in general to mitigate the risks involved in lending.
Credit institutions are required to operate the KHR under Act CXXII of 2011. The Act defines the aims of the KHR as follows:
“Data held in the Central Credit Information System are processed to enable more informed judgements on creditworthiness as well as to promote fulfilment of the requirements for responsible lending and the mitigation of credit risk with a view to ensuring the safety of debtors and reference data providers.”
Consequently, by supporting responsible lending, the KHR serves the interests of both customers (“debtors”) and credit institutions (“reference data providers”).
Parties to the Service
- Basically, the operations of the KHR involve the following three players:
- The KHR Service:The central KHR database is operated by BISZ Zrt., providing access in accordance with legal regulations.
- Banks and financial institutions: Institutions engaged in lending or the provision of loan-type products and services are authorised to use the KHR database to make queries and submit data. Such institutions include banks, savings cooperatives, leasing companies, companies specialising in the provision of personal loans, sales finance and housing loans, and other financial enterprises. Institutions such as the National Tax and Customs Administration (NAV), ministries (except Family Insolvency Service), municipalities, public utility and telecom providers and NGOs are not allowed to subscribe to the Service.
- Customers: Individuals and businesses whose customer and credit agreement data (as well as data on events of default and abuse as specified in the KHR Act) are submitted to the KHR by credit institutions.
- The KHR holds data on both consumers and business customers. Accordingly, the KHR consists of two parts, referred to as “subsystems”:
- the consumer subsystem holds data on individuals,
- the business subsystem holds data on businesses.
The KHR holds full records, i.e. it contains positive information (in respect of debtors whose repayments on their debts are in order) as well as negative data (in respect of debtors in default, or abuse).
Records in the consumer subsystem of the KHR cover the following data categories:
- Register of credit agreements
- Information on credit default
- Data on bank card fraud
- Register of loan applications rejected on grounds of fraud
Under applicable legislation, financial institutions are required to register the data of all credit agreements and agreements for similar financing schemes (leasing, securities lending, etc.) in the credit agreement records of the KHR consumer.
The customer may specify in a statement whether to allow banks to query their credit data on record as part of credit assessment. They may also specify whether the information should be deleted following closure of their account, or held in the KHR for another five years. As “good debtors” with verified positive credit histories are highly appreciated by banks, this prospect is valuable for every individual seeking to apply for a loan.
The option to make a statement does not apply to credit default, bank card abuse and fraud, as such information will be available to banks for credit assessment irrespective of any statement made by the customer.
Personal data on record
The consumer subsystem of the KHR maps all information to individual customers. This means that in respect of a credit agreement, default or abuse, records will include information on the agreement and abuse as well as personal data on the individual contracting party.
The KHR collects the following information on each individual:
- Birth name
- Place of birth
- Date of birth
- Mother’s birth name
- Current name
- ID card number
- Passport number
- Driver’s licence number
- Number and type of other identification document
- Home address
- Mailing address
- E-mail address
- Role in the credit agreement on record (debtor, co-debtor)
The information on record will remain in the KHR as long as the records contain any credit agreement, default or abuse linked to the customer. Subsequently, the information will be deleted irretrievably.
How do credit institutions use the information obtained from the KHR?
Users of the KHR may access the information held in the KHR only in the manner and for the purposes specified in the KHR Act.
When a credit institution is contacted with a loan application or financing need, it will consider the applicant’s creditworthiness as part of the credit assessment. As part of the assessment, a bank will request the customer to submit a wide range of information and will also gather additional information from a variety of sources in order to have the best possible understanding of the customer’s repayment capacity. For banks, the KHR records are one such key source of information.
The KHR consumer is capable of recording both positive credit histories and negative information (events of default, abuse and fraud). Using the KHR, banks can assess the creditworthiness of their customers more accurately, which allows them to make better offers and, in the spirit of responsible lending, avoid lending to insolvent or over-indebted customers. This serves the long-term interests of customers as well. The KHR Service has benefits for both customers applying for loans and the credit institutions extending the loans.
Register of credit agreements - Consumer
The database holding credit agreement data on individuals contains full records, i.e. data on all open agreements for consumer loans and similar schemes (as well as on closed agreements for customers that have made a statement to that effect) with credit institutions in Hungary. One customer may be associated with any number of agreements, possibly with multiple banks.
Agreement data are kept on record so that when an individual applies for a loan with a lender, the lender may rely on a reliable source to accurately determine the customer’s level of indebtedness, and adopt a responsible decision in the course of credit assessment. This possibility protects the customer against the dangers of over-indebtedness, while reducing the risk of loan losses incurred by the bank.
Individual customers have the following two options to influence the range of their agreements held on record in the KHR and the possibility to query their data for credit assessment:
- They can state whether other banks may query the KHR for data on their performing loans.
- They can state whether information on their agreement should remain in the KHR for another 5 years following repayment of their loan.
By making these two positive statements, any individual with a loan can allow access to their positive credit data and credit history by banks and other credit institutions using the KHR.
The retention time of and access to information on credit default cannot be influenced by customers’ statements; such information will remain available to banks in any case where the statutory requirements are met.
Statement to influence the visibility of KHR information related to credit agreements
An individual customer with a loan may make a statement whether they consent to their positive credit data (i.e. those not related to default or abuse) being queried from the KHR. This provides for three options:
- Positive statement: for credit assessment purposes, banks will have access to all data in the KHR relating to credit agreements.
- Negative statement: for credit assessment purposes, banks will only have access to negative information on default and abuse, and to notices that the customer has not given consent for their agreement data to be viewed.
- Where the customer has not made a statement (this is possible only with loans taken before legislation regulating statements became effective), the KHR will provide information on the absence of a statement, and only return any negative information on record.
Based on the above, banks will have access to an individual’s KHR data on credit agreements for the purpose of credit assessment in the following cases:
- It will always be possible to query credit agreements associated with a default, including default-related information.
- Where the customer submits a statement to any of their banks to allow their credit agreements to be queried from the KHR, banks will have access to all of their agreement data for the purpose of credit assessment.
However, please note that a bank can make a difference between a person without any credit agreement on record (in which case the person concerned will not be found in the KHR), and a person who has a loan with another bank, but has not given consent for their agreement data to be viewed (in which case the KHR will inform the credit institution that a negative statement prevents it from displaying the information). The bank will take this circumstance into account for credit assessment.
Statements concerning the visibility of KHR agreement data can be made and modified by the customer at any time with any of the KHR member credit institutions. In any case, the most recent statement will be applicable to all of their agreements on record. This means that a customer may also limit access to their data for the duration of credit assessment. Such limitations provide additional protection of the customer’s data.
Statement on the retention of data following credit agreement closure
An individual customer can make a statement in respect of each of their agreements as to whether their agreement data in the KHR should be retained for another 5 years following repayment of their loan.
- In the case of a positive statement, the data of the performing credit agreement concerned will be retained in the KHR for another 5 years after closure.
- In the case of a negative statement, the data of the performing credit agreement concerned will be deleted from the KHR.
Positive statements concerning retention after agreement closure can be modified at any time during the 5-year period, which will delete the agreement data concerned from the KHR. Modification does not work inversely, since data deleted pursuant to a negative statement cannot be made visible again.
Statements will not or only partly influence data on credit agreements with an associated default:
- Where the default has not been settled (an open agreement is closed after the 5-year period with a charge-off), the defaulted agreement will be retained in the system for 5 years after closure (up to 10 years after the default).
- Where the default has been settled with no loss to the bank, data on the default and the defaulted agreement will remain visible in the system for an additional year despite a negative statement, irrespectively of whether or not the credit agreement has been closed in the meantime.
Benefits of a positive KHR credit history
By making the appropriate positive statements, any individual with a loan can allow access to their positive credit data and credit history by banks using the KHR. This is an excellent opportunity for customers with a good credit performance as well as those with a non-performing loan (a default history in KHR). International experience has confirmed that banks appreciate “good debtors” with positive credit histories. Customers making their positive credit histories available in the KHR are offered the following benefits:
- Potentially lower interest rates and fees. A good customer is of lower risk to the creditor, which in turn may be willing to extend a cheaper loan to them.
- Possibility of simpler and faster credit assessment, as a verified good credit history can simplify the bank’s process of credit assessment and risk analysis.
- Fewer statements and documents to be submitted.
- Possibility for the banks to better tailor their offers.
- An additional benefit is that positive credit information in the KHR may be sufficient to counterbalance negative information that may be held on record, putting it in the right perspective.
Register of credit defaults
The credit agreement register of the consumer subsystem contains data on defaults by natural persons who, for over 90 days and in excess of the applicable rate of the minimum wage, have failed to meet their obligations undertaken in any agreement for loans or similar schemes which they entered into with any financial institution. The two conditions must be satisfied simultaneously.
The period is counted from the day on which the default exceeds the amount of the minimum wage. That is, a default that existed previously, but remained below the minimum-wage limit is not counted in the 90-day period. Additionally, a default exceeding the amount of the minimum wage must not be reduced below that amount for even a single day during the 90-day period, otherwise the counter is to be reset.
With consumer loans, the bank is required to give written notification to the customer at least 30 days in advance of any expected default-related data sharing with the KHR. Where the customer settles the default before submission or the amount of the default falls below that of the minimum wage, data will not be shared with the KHR.
When recording individual events of default, banks map them to the credit agreements held in the KHR. Under the KHR Act, the processing of defaults in the KHR does not require the customer’s specific consent.
The system differentiates between outstanding and closed defaults. A credit default is closed either with a charge-off or through the satisfactory settlement of the overdue debt in one of the following ways:
- Arrears are paid by the customer.
- Arrears are paid by enforcement against collateral or sureties.
- The agreement is rescheduled or is settled by mutual arrangement without a charge-off.
Defaults are administered on a continuous basis (the data of the event are registered in the KHR on occurrence, and the event is closed in the KHR when the default is terminated). Defaults closed by settlement will remain visible in the system for 1 year from settlement, defaults closed with a charge-off (or through arrangement) will remain visible for 5 years from closure (up to 10 years from the original data sharing) without the customer’s specific consent, and will then be removed automatically.
Agreement data on record
The KHR records the following information on each agreement, both for loans in default and those performing:
- Date of the agreement
- Expiry date of the agreement
- Termination date (excepting open agreements)
- Type of agreement (credit institution product)
- Amount and currency of the agreement
- Amount and currency of principal debt outstanding
- Information on regular repayments (amount and currency of instalments, method and frequency of repayment)
- Information on early repayments (dates and amounts of early repayments, amount and currency of principal debt outstanding)
- Notes on the agreement
- Information on whether the bank currently managing the agreement has acquired it from another bank (as part of the sale of receivables, sale of a business or fusion).
- Information on whether the agreement may remain on record in the KHR for another 5 years following closure.
Information on the amount and currency of principal debt outstanding and regular repayments is updated in the KHR by all financial institutions on a monthly basis (by the 5th business day of the month following the month concerned), enabling credit assessment to rely on an accurate measure of the customer’s creditworthiness in the light of up-to-date levels of indebtedness.
In addition to the above, the KHR records the bank (and branch) managing each agreement; however, this information serves only to identify the financial institution authorised for maintenance and is not accessible by other banks.
In addition to general customer and agreement data, the KHR holds the following data on credit defaults:
- Amount and currency of the default (by default, the amount of the default will equal that of the arrears, but if the credit agreement is terminated for reasons attributable to the customer, it will equal the amount of the entire claim, including unpaid interest and charges)
- Date the default occurred
- Date the default was terminated
- How the default was terminated (options: by customer, by another person, amended agreement, enforcement against collateral, new credit agreement, arrangement, charge-off)
- Note on registration of the default
Note on termination of the default