Credit Reports in Japan

Introduction

I have been asked by friends and classmates about credit reporting in Japan, and how it works. For example, people have asked me “Is there such a thing as credit reporting agencies in Japan?” “Do the agencies that report overseas also report in Japan?” “Will Japanese banks check overseas credit reports?”, etc. I hope to answer these and more.

If you are living in Japan and applying for credit with Japanese companies (or foreign companies with a Japanese presence), they will almost for sure check your credit information (信用情報).

In this post, I will cover the credit reporting system in Japan, including the agencies, common questions, and best practices.

What are Credit Reporting Agencies?

In many countries, credit reporting agencies exist. These are organizations that collect and provide credit information on people. The information they collect and report on includes credit card information, loan usage history, and bill payment. Generally, for each loan the following are reported: The date the loan was taken our or the account was opened, available credit, credit used, credit available, and payment history.

Financial institutions like banks and credit card companies will use this information to decide whether to lend money or not, the credit limit, and interest rate they will charge.

One major purpose of this information is to prevent debt overload and help insure people maintain a healthy financial balance.

The major credit reporting agencies in Japan

In Japan, there are three main companies:

• CIC (Credit Information Center Corporation): This company is mainly owned by the credit card companies and credit finance companies.
• JICC (Japan Credit Information Reference Center Corporation): Members include consumer finance companies, credit card companies, and banks.
• KSC (National Information Center of Japan): Operated by the Japanese Banker’s Association (全銀行協会), most members are banks.

Each agency has different types of members, so the credit report used is usually determined by your use case.

Credit Reporting Details in Japan

Information Stored

In order to make sure the correct credit report is provided, information such as your name, date of birth, address, and phone number(s) are used to identify you. Note that unlike some other countries, your Tax ID numbers (MyNumber, Pension Number, etc.) are not recorded or used for these purposes.

Contract details for loans and credit cards. This includes the date you entered into the contract, the type of contract, amount you owe, the amount remaining, etc.

Payment status including payment dates, whether there have been missed or late payments, etc.

Recent Inquiry information, when will list who has checked your credit report, for what reason, and when.

In the case of KSC, information about bankruptcy, financial reorganization, etc., is also included.

Information not stored

Some information is not stored on your credit report:

1. Bank account and brokerage account balances. If you want these to be included when you apply for a loan, then you need to ask the bank for an official balance statement (残高証明書) and provide this to the potential lender.
2. Overseas accounts of any kind. Credit reporting agencies in Japan don’t receive input from banks, utility companies, or credit card companies overseas. If you move to Japan you are starting fresh.

It’s also important to note that most companies won’t try to check your overseas credit reports either. In some cases, if you have used the same company overseas, they may share the account information internally to know your history with them.

Data Retention Period

Once a contract ends (For example, when a loan is paid off in full), the information is usually kept on file for about 5 years.

Delinquency Information is usually kept on file for about 5 years after it has been resolved.

Information such as bankruptcy and financial reorganization is usually kept for around 7-10 years.

It’s important to understand that information can stick around on your credit report for years to come, so you really want to avoid any negative information such as late payments, etc., and resolve any missed late payments as soon as possible.

When if your credit report checked?

1. When you apply for a credit card
2. When you apply for a loan, including house loans, car loans, education loans, “card loans” (Cashing), etc.
3. Whenever you use a guarantor company as part of renting an apartment.
4. When you sign up for mobile phone service, in many cases. This is particularly true if you sign up for a plan where you are not paying for the phone up front in cash.
5. There may be other scenarios as well, for example if a landlord decides to check your credit, or as part of a larger background check.

The Blacklist: When it all goes bad

• When you have a long term payment delinquency (you are behind in payments for a long time). 1-2 days is not usually an issue, but months of late payments will be a large issue for sure. Make sure you pay on time, every time.
• Bankruptcy or financial re-organization – Anything like this is a black mark that lasts for a while.
• Any time a guarantor company needs to pay out because you didn’t.
• When a credit card company cancels one of your cards involuntarily.

Note that there isn’t actually a “Blacklist”, but if a lender pulls your credit report and it is full of late payments, etc., then they are basically not going to loan you money.

Best Practices

• Make sure you pay on time! This is by far the most important point. If you know a credit card or utility payment is coming, then check the balance of the bank account it will be deducted from before-hand. Check the balance of the upcoming payment, and make sure you have enough in the associated bank account to cover it. Also check after the payment was scheduled to be made to make sure it actually was. If there are any issues, contact the company immediately, and arrange to make a payment the same day. If you receive a paper bill, make sure you keep it somewhere where it is easy to find or notice, and put a note in your calendar to pay it on time. If you have a choice of when the payment date falls, make it as close to (but after) your pay day as you can.
• Use credit card cash advances and “Cashing” cards sparingly – These types of loans are recorded separately, and many lenders will look at this as a negative. Often people need to borrow cash because they don’t have any on hand, and it can indicate problems with gambling, etc.
• Avoid many applications in a short time period – Be aware that credit applications are recorded, and if you apply for lots of credit cards or loans at the same time, it tends to make banks worry that you might be in financial trouble. You should try to keep it to under 3 applications per 6 months. Note that for some types of loans, such as mortgages, “Shopping” is considered normal and may be overlooked.
• Check your own credit report regularly – You should grab a copy of your credit report from each of the agencies about once per year and have a look. You want to look for any incorrect or outdated information, and contact the credit reporting company in case there are any such issues. You can apply online for a copy of your credit report from each agency. (A small fee may apply).
• Only borrow as much as you need to – Just because you can borrow doesn’t mean you should borrow. The more you borrow, the harder it will be to pay back. If you owe money, then you can’t sensibly invest money, and investing money is the key to financial independence. Therefore, when it comes to credit cards, only spend what you can afford to pay back in full in the next month. Even zero interest shopping loans can add up if you purchase multiple items.
• Prepare ahead of time for large or important loans – You might want to get a copy of your credit report a few months ahead of time to make sure that you don’t have any surprises when you apply for that important loan. A few months is generally enough time to pay off any loans you had forgotten about, correct mistakes, etc. It’s generally a good idea to have one credit card or other loan to build credit, so that when the time comes, there is something on your credit report.

How to repair damaged credit

• If you are denied a loan, check the reports and understand the facts.
• Make sure you pay the minimum payment on all loans and other bills, and then work on paying off any accounts you are behind on. If there is no way to pay everything on time, then it is better to be late on one account than two or more.
• Beware of “Credit repair” companies, these are generally scams. There are legitimate ways to consolidate debt, negotiate your debt, etc. These are something you should consider if there is truly no way to get ahead, however bear in mind that these will leave a black mark on your credit report for 7 years or more.
• Realize that it will be hard to get new credit and may be restrictions on existing accounts until you pay things down or get the information corrected.
• If the problem is not errors, but overspending, etc., then fixing your behavior should be the priority. Even if you pay everything off, you don’t want to fall into the same trap again.

The Application Process and Criteria

When you apply for a credit card, home loan, or any other type of loan, the bank will do an screening assessment (審査), in order to determine whether they want to loan you money.

They will pull your credit report as part of that process and examine the information in the report. For example, they will check the following items:

• your payment history
• The percentage of available credit you have used
• The number of open accounts
• The length of your credit history
• The number of recent applications.

They will also check your history with their own institution, and with any guarantor companies they are affiliated with. (Note that this information does not go away when it ages off of credit reports, as they could keep information internally forever!)

Aside from that, though, they are most concerned about your “stability”, this is reflected, in their mind, by things like:

1. Your address history. The longer you have been at your current address, the better. The less you have moved in the last 10 years, the better. If you haven’t lived at your address for at least 2 years, this will generally be seen as a negative.
2. Your employment history. Much like address, the longer you have been at your current employer, the better. The less you have changed jobs, the better. If you haven’t been at your current employer for at least 2 years, it will be seen as a negative. Larger, more famous, and more Japanese companies are generally seen as more stable.
3. Income Amount and Stability – They will ask for your income information as part of the application process. If your income varies by a huge amount because you are in a profession like sales, then that will count for less than a smaller but more regular salary.
4. They may ask you to give an official bank account balance statement. This is more to show that you have enough to actually make the down payment, etc., than anything else.

In general, banks don’t care as much about how much you have or how much you make, compared with your stability and payment history. From the bank’s point of view, just because you “can” pay doesn’t mean you “will”. For example, even if you make 12M JPY per year and have 50M in cash the bank, but you change jobs every 18 months, move often, and have a lot of late or missed payments, nobody is going to loan you money.

Also note that Japan doesn’t have an equivalent to the “FICA Score” used in the US. For example, CIC does provide an “Index” (指数), but the other two agencies do not as of now, and this is not consistently used by lenders either.

Personal Experience

Although I am not a foreigner, I do have friends who are foreigners, and I also extensive experience with the credit system in Japan.

Missed payment by 1-2 days

I have has this happen a number of times, often because I forgot to transfer money into an account where the money was taken from.

It’s important to call the company in this case, because some companies will try the deduction again later that day or next day, whereas other companies will only try once, and you will need to send them the payment manually if it doesn’t go through.

I always check on the scheduled day of the deduction, and if it hasn’t happened by noon, then I will call the company, so I can take care of the problem on the same day if possible.

Generally if you have to pay manually, it will involve doing a bank transfer. If the payment is late, there are generally not late fees, but there may be additional interest fees, so be sure to check the exact amount you need to send.

In some cases, you may also be able to pay at an ATM or in person.

Overseas Loans – I had private student loans overseas, and when I mentioned this to a loan officer at a Japanese bank, he said “I didn’t hear that”. They don’t check overseas credit reports, and they don’t want to know.

Paying back loans and having that be reflected

In preparing to borrow about 2000 man for a loan, I decided to pay down some outstanding credit card loans, etc.

I grabbed my report from CIC, which was easy to do online because I had a Marui ePos card. This card can be used to both verify identity and also pay for the credit report fee (which was 500 or 1000 yen). Verification of my phone number was also necessary, and the reports were provided in PDF format for download. Subsequent reports within a week were free of charge, so you can pay once and download several reports. After about a week passes, you need to pay again.

When I took a look at the downloaded credit report, I was surprised to see not only credit card information, but also the outstanding balance on shopping loans for things like my mobile phone and bike.

Technically, the credit reports update every day, but some of the updates may only happen once per month. This is because your credit report will only be updated when the creditor reports your latest status, which is often only once per month.

Some of the loans I paid in full updated as “paid in full” to my credit report within a few days. Some took over a month to reflect on my credit report. In the meantime, I asked those places to provide me an official document stating that my loan had been paid off in full, so I could give that to the bank while the credit report was in limbo.

This is why getting a copy of your credit report several months ahead of time is a good way to prepare for applying for a large or important loan.

Considering financial re-organization

Many companies (often legal firms) will market to people in trouble with debt. Usually they will say “Our method is legal and recognized by the Japanese Government!”

This is true, but this method called “Financial Reorganization” (債務整理), which usually means debt restructuring or debt consolidation in combination with some negotiations with lenders. The most frequently used method is “Voluntary Liquidation” (任意整理), which avoids the costs and delays involved with the courts. The company operating on your behalf would seek reductions in the interest fees, etc.

I actually discussed my situation with one of these companies after graduating college since I had student loans debt and some other debt. My intention was only to try to consolidate debt and/or get a lower interest rate.

After discussing with them for a bit, I realized that they were advocating voluntary liquidation and consolidating with them. I asked “Why would the company let me pay less than I owe?”, and they said “Well they have already made a lot off of you already… We’ll convince them to be happy with the interest they collected so far instead of nothing. We’ll tell them you can’t afford to pay, get them to lower the amount, and then we’ll pay off the loan and add it to the consolidation balance”.

Once I realized this was a liquidation service, I thanked them and terminated proceedings. This is because I didn’t actually have any problem making minimum payments, and didn’t want to back out of my commitments. I also didn’t want to have a bad credit report for 7 years just so I could save on some interest – there are other ways.

Speaking of bad credit reports, I know a person who was applying for a home loan with their wife, and was rejected. When they asked for the reason, it turned out that it was because their wife did a liquidation 13 years ago. This information was gone from the credit report, but the liquidation affected the bank the husband had applied to, and they kept internal records forever. They ended up applying to a different bank and not listing the wife as a co-signer.

Cancelling credit cards

When I went to college, I was offered a credit card. When I started working, I was offered a lot of credit cards. Just a few at first, but since I always paid them, the amount grew rapidly over time.

• Marui asked me to sign up for a discount on clothing. That sounded good, so I did. That store card turned into a Visa card, then a gold card, then a platinum card.
• Likewise, NTT asked me to sign up for a card to get a discount on my internet service when I signed up for FLET’S Hikari. Sure thing.
• When I got a new cell phone through NTT Docomo, they asked me to sign up for the DCMX card.
• My company had me sign up for an SMBC Corporate sponsored card for business trips.
• Japan Rail suggested I sign up for the View Card to get discounts and points on Shinkansen tickers.
• I had an Amex Green Card since college.
• Then BIC asked me to sign up for their card when I got new phone shortly after graduation, but then rejected my application.
• I tried to sign up for MUFJ Amex Platinum (Also shortly after finishing college) and was rejected, but a few years later they sent me pre-approved offer for the same card. I signed up for it mainly out of revenge.
• Basically every time I went shopping somewhere, they would offer me discounts to sign up for their card, so Lumine card? Sure. Muji? Why not. Yodobashi? Sure.

A few years ago I sat down looked at the growing pile of cards, and decided “This is crazy”. I mean, I had two cards just from different subsidiaries of NTT! Many of these cards had one single charge on them every month. My phone bill was on one card, my electric bill on another, etc. Some had small yearly feed. Some had huge yearly fees. Some also had extremely high limits and benefits I didn’t use. I remember by MUFG card had a limit of like 500 man yen, and my Marui card 300 man. Those two also had high yearly fees for things like airport lounges, which I rarely used.

I decided to simplify my life, and consolidated all of the cards down to just two. I checked online about the impact this might have on my credit reports. To summarize, it looks bad if you close a bunch of accounts at once. Perhaps they think you are preparing to go into hiding, commit suicide, or flee the country. Anyway, as a result of this information, I started cancelling 1 card every 4-6 months until I was down to just two cards.

One Take-away lesson: Considering how easy it is to sign up for credit cards, canceling them can be a royal pain. Some involved a simple phone call, but for others I had to go in person, bring documents, ID, my inkan, etc.

Paying Paper Invoices (払込票)

For some bills, they send paper invoices. In fact this is the case with almost all bills at first until you can switch them to direct debit or credit card payments. It’s easy to forget that these will arrive, and be caught short-handed.

If you only have one bank account, you might look at the balance and think “I have plenty of money left”, and then you get a bill in the mail for 27,500 JPY after you’ve spent most of your cash. This isn’t a fun situation, but there are some ways around it.

1. Have the companies charge your credit card. This is nice because you pay all your bills at once (when the credit card is due), and you know how much it will be usually several weeks ahead of time. Some companies will charge more for this, however, and many don’t offer it as an option.
2. Have the companies direct debit your bank account. While this is less work than paying in person, it also means that you may still be surprised by the amount and timing if you don’t really keep on top of things. Still, if you know that your bills generally add up to X per month, you can make a separate bank account that has X + B, where X is your estimated total from all your bills and B is some buffer amount. Every month when you get paid, you transfer enough money to bring the account back to X + B. This way, you don’t see the money in your mail account and aren’t tempted to spend it. One downside is that many companies don’t support minor banks for direct debits. For example, View Card doesn’t support PayPay bank.
3. You can pay the paper bills using PayB or Mobile Regi, phone apps that let you scan the bar code and pay from your bank account. Here, at least you can control the timing somewhat, since you can pay them before they are due from the app out of your bank account (which again can be separate from your account).
4. You can pay paper bills Using Nanaco. This is not true for all bills, but most can be paid via Nanaco. Since a Nanaco card can hold 20 man JPY, you can actually put money into a Nanaco card (or your mobile Nanaco) each month for things like property taxes, milk delivery, etc.

Official Balance Statement (残高証明書)

If you have a bank account with a passbook, then that is actually quite convenient when banks ask for an “official record” of you account, as a copy of your passbook is typically enough.

If not, then you can often provide evidence in two stages.

1. First, you take a screen shot of your online banking information. This screenshot should include at a minimum, your name, the account number, the date, and the balance. They will usually start the screening process if you can provide this.
2. For final confirmation, you will need the bank to provide an official statement of balance. This will be printed on fancy paper and have the bank’s official seal. If you are dealing with a net bank, then you can typically order this online and they will mail it to you. If you are dealing with a brick and mortar bank, then you may need to go in person to request it and wait a week or more.

Because this can take time, I highly recommend you apply early.

Proof of Income

Typically banks will accept two types of proof of income, and may ask for one or both.

• Tax Records – There are two types, one for the current year that shows taxable income (課税証明書), and one for the previous year that shows taxes actually paid (納税証明書). These can printed at city hall, or in some cases at convenience stores like 7-11.
• Remuneration Statements / pay slips (給与明細) – These would be provided by your employer, either on paper or PDF.

I have been asked for these things when applying for loans.

Proof of Employment

Banks might ask you to provide proof that you are currently employed, with the company you say you are, and to check the type of contract, date you were employed, etc.

In this case, you can ask your employer for a certificate of employment (在籍証明), which would list the company name, your name, the date of employment, type of employee, and often some other things like your base salary. Most importantly, it will have the company’s stamp, so they know it hasn’t been tampered with.

I have been asked to provide this as well when applying for loans, and my company has always been cooperative.

Other Documents

Other common documents you might be asked for are your residence register (住民票) and inkan registration (印鑑登録証明書). These can both be printed at city hall, or a convenience store if you have your MyNumber card set up to allow this.

Foreigner experience 1: I know one person from Taiwan who moved to Japan on a work visa and was able to set up a phone contract with an installment plan almost immediately. After several years in Japan, they applied for citizenship and were able to get a home loan.

Foreigner experience 2: I know one person who was here on a student visa and got a phone from Docomo without issue. They lost the phone, and decided to stop paying the bill even though they were on an installment plan and the phone was not yet paid off. This had a negative effect on their credit since they still owed Docomo money, and they weren’t able to sign up for a new phone several months later. They realized their mistake and paid the phone company, but were still not able to sign up for a new phone via the normal routes. Their phone was eventually found and returned by the police, but it was too late by then. They eventually signed up for a kakuyasu SIM plan with no contract and bought a new phone in cash.

Foreigner experience 3: I know one person married to a Japanese partner who was asked by a store to sign up for a credit card. She was surprised when they were approved.

Foreigner experience 4:I know another person married to a Japanese partner who has no problem signing up for credit cards and home improvement loans, but hasn’t been approved for a home loan. This is likely partly because they are on a spouse of Japanese national visa and not a permanent resident status, and partly because they work in sales. Even though they work for a major Japanese company and their average salary is quite high, the variability in pay is also quite high and the guaranteed salary is low. This person is also quite wealthy and had no problem buying a house in cash, but that alone didn’t convince banks to lend to them.

Other Oddities – Borrowing more is lower risk?

In general, when investing you will find that higher return requires taking on more risk. Likewise, a desire to expose yourself to less risk means earning a lower return.

If you think about it, a bank loan is just a bank investing in you. That means the more risky they think you are, the more interest they will charge. On the other hand, the less risky they think you are, the less interest they will charge. If they think you are extremely risky, then they simply won’t lend to you at all.

This is why, for example, loans with collateral such as home loans typically carry less interest than unsecured loans such as credit cards.

There is one part of the Japanese system that might surprise you, however.

If you apply for certain types of loans, you will find that they will decide your maximum balance and interest rate together.

For example, have a look at this advert from Sony Bank:

Here they say something like “Let’s have fun now with Sony Bank’s Card Loan”. Yes, great idea, have fun now, pay them lots of interest later. This is essentially a loan similar to the cash advance feature of your credit card. You can take out cash, spend it on anything you want, and have to pay a lot of interest.

Anyway, the interest is listed as 2.5% – 13.8% APR, and the amount you can borrow varies from 10 man JPY to 800 man JPY.

Normally, I would assume that the more they lent someone, the riskier that would be, and so the more interest they would charge. As it turns out, I would be wrong, as they also include this helpful table listing the possible loan amounts and corresponding interest rates:

Notice something funny? The more you are approved to borrow, the lower your interest rate becomes!

This is because they don’t think of risk as a function of how much you are borrowing from them, but instead as a function of your income and credit history.

If you don’t owe any other debts, have a great credit history and a high income, they may well approve you for the highest bracket. You can borrow a lot of money and for very cheap.

On the other hand, if you don’t have a great credit history, your income isn’t that high, or you owe debt elsewhere, you will be stuck with both a low limit and a high interest rate.

For this reason, it is often better to get one large loan from one company than several small loans from various companies.

Considerations for Foreign Residents

As a rule, foreign residents fall into one of a few categories:

• Short term residents and non-residents – These people generally are not even eligible for bank accounts, much less credit.
• Medium term & Long Term residents – These people are not always considered for loans by all banks. Banks may feel that they could leave the country suddenly with unpaid debt. Generally getting credit cards and small loans such as shopping loans and mobile phone loans is not an issue if they are employed. Some banks are more generous than others in this regard, and banks will generally be more lenient to people who have been in Japan for a long time, and those married to a Japanese spouse.
• Permanent Residents – People with this status are generally treated by banks the same as if they were Japanese citizens.

Foreign debt not showing up in Japanese credit reports can be both a curse and a blessing. On the one hand, since you will start off fresh in Japan, any bad credit history you may have had overseas is effectively erased. On the other hand, that also means that years of diligence in paying off your loans is not going to help you either.

Conclusion

• Credit Reports are similar to a report card for your finances.
• Credit reports are not complex, they are just a listing of your debts and payment history.
• An understanding of how credit reports work in Japan, what information is recorded, and what matters, is important to making sure you will be able to apply for credit when needed.

Future Posts

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