KUALA LUMPUR: While CTOS Data Systems Sdn Bhd does use its own formula to come up with credit ratings, the information it receives on creditworthiness comes from financial institutions.
Economist Dr Geoffrey Williams, however, said failure to ensure the information was accurate would be detrimental to people as their rating could be downgraded.
He said there was no hard and fast rule about what formula is used in credit reporting.
However, he added that the bigger question to ask here was whether the market accepted the formula and is it transparent enough.
Williams was commenting on the recent High Court ruling that CTOS was not empowered to formulate its own credit score.
Williams said CTOS should certainly ensure that accuracy is upheld, but he did not believe the ruling reflects the entirety of the credit rating system.
"But based on its obligations, I believe an appeal would be made as CTOS would not want to jeopardise other ratings issued."
Meanwhile, Small- and Medium-Scale Enterprises Association national president Datuk William Ng said credit rating agencies were not intended to serve as arbitrators for businesses seeking credit.
He said credit reporting or rating agencies (CRAs) were never meant to provide "passing remarks" of who could or could not do business with banks or companies.
Ng said that while the basis of reports were historical records — including payment history, past and current litigations, and legal status, for example, impending or current bankrupt status — CRAs typically provide a score to help clients such as banks to understand how these records impact the probability of borrowers or trading partners to default or abscond on their loans.
He added that users of such reports should do their own due diligence, "since no reporting framework is perfect".
"I do not think the judgment will impact how the business community views CTOS, and I hope it will not cause mistrust of the credit rating systems," he said.