As young professionals, we longed for the day that we can buy things without asking for the approval of our parents. Do you still remember the first time you received your first salary? Nothing compares to that feeling that signals the early steps of independence, right?
Are you still shopping for the latest trends or are you ready to make bigger investments?
But after months or years of shopping
and buying whatever you want, soon you’ll want to invest on more important items like gadgets, furniture, a car
, or even a house! Sure you can go to the nearest bank and ask for a loan, but are you sure you’ll get that approval?
Not known to many, Philippine banks and loaning institutions generally follow a similar credit rating procedure that help them decide whether you are deserving of that loan or not. To make sure you get that approval, here are some tips on how to manage your credit ratings that will eventually help you for your future.
In the United States, credit ratings are based on numbers (say a high rating is around 800 points, and a low rating is 300 points) and points get deducted every time you don’t honor the terms of your credit (missing a payment, revolving debt, etc.). But here in the Philippines, though we follow the same principle, the approval is based solely on the judgment of the bank but with reference to your credit history.
How does our loan get approved?
There are many players in this intricate game that ultimately decides your future (or loan). There are credit bureaus in the Philippines that partner with various government agencies, companies, and schools to gather information about you. This can go from information like your employment history, the schools that you’ve attended, and the credits and loans that you’ve applied for in the past.
The other players are the banks
. These banks partner with each other to also share information about you, the customers. These can be the credit card companies
you’ve applied for, your consistency in paying them, and so on.
Now this is what happens behind the scene. After you’ve submitted that application for your next credit card or loan, the banks and the credit bureaus work with each other to do a background check about you. If they see that you are a good payer and will likely follow through with your terms, you’ll get an approval stamp! But if you are always on the run, missing payments and forgetting that you have a credit card… well you may encounter some problems.
WHAT’S IN IT FOR ME?
You might be thinking… do these credit ratings affect me? If you are a responsible adult, the answer is YES. It might not seem like it, but your credit activity today directly affects your loans in the future.
Yes! It can affect your loans in the future
Obvious disadvantages of having a poor credit rating can include a harder time for you to borrow money from the bank like acquiring personal loans and housing loans, among others, higher interest rates for your loans once approved, or having your application for a simple credit card denied. Aside from denial of loans, other disadvantages of having bad credit ratings can include unemployment. Most companies partner with credit bureaus for background checking and habits with your credit card might cause you a job.
But if you have a good track record with your credit cards, you’ll be able to get those approvals for loans easier in the future! If you honor your word with your banks, you’ll also get other perks immediately like higher limits, freebies, and other add-ons with lesser interests.
Again, credit rating in the Philippines is not based on numbers. You won’t get additional points for paying on time or deduction for missing payments, but these kinds of activities will affect the judgment of the banks when you get a loan.
GETTING THE APPROVAL
Now that we’ve laid out the foundation, it’s time to aim for that approval stamp! Here are some tips to get you started.
Loaning for small items like your gadgets and paying them on time is a good start.
• Start Early.
Planning to apply for your first credit card
? Go for it! You can start now and build a great credit reputation by abiding by the rules and paying on time. Once you need a bigger loan like for a car or a house, you’ve already set up a good credit rating and will immediately get an approval. The discipline you instill in yourself today will have a good payback in the future. Just be really careful with your card purchases and payments so you won’t risk piling up on debts at an early age instead.
• Keep it a Minimum. Do not hoard on credit cards! Although keeping a number of credit cards can be good for your rating, try to keep it to just a few that you can manage and not run away from in the future. Every time you apply and use a new credit card, it goes straight to your records and banks can use these against you if they see some questionable habits.
Always think twice before using your credit card.
• Be Consistent. One of the biggest factors that banks consider when you apply for a loan is how good you are with your payments. Being consistent and paying on time means that you are good at keeping up with your promises. It gives banks the impression that you’ll also keep up with your new loan. You can schedule a reminder on your phone whenever your credit is due or even sign up for an auto-debit with your bank to avoid missing your payment dates.
• Don't Max it Out. As you get better with your payments, you also get better rates or credit limit. But be wary of maximizing your credit. Better keep your usage at a minimum and base it on how much you can really pay per month. Maxing your card out means acquiring huge purchases and high payment obligations which could likely lead to a revolving debt. With a revolving debt, you carry a balance or unpaid amounts from month to month that can end up to your debt piling up together with the corresponding interests as well. In the United States, a popular rule is keeping it at 30%. If you have a credit limit of PhP100,000 better keep your card expenditures at PhP30,000 or below.
• Check the Bills. Even if the credit card statement comes out late, still make it a point to review them instead of just relying on your receipts. Although this is unacceptable, there are instances in which a bank or a store charges you incorrectly. There are also times that you might spot some fraudulent activities, like another person using your card. These charges, if left unnoticed will also cause you poor rating, giving an impression that you are not good at making payments.
Whether you’re just starting out with your credit card or aiming for that dream car, you can prepare now and set that credit ratings right.