Asteria Lending Inc. 14th Floor, World Center Building, 330 Sen Gil Puyat Ave, Makati, Philippines
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Credit scores are important and will ultimately define how much you can borrow and how much interest you are likely to pay. Though factors like income, age, time at your current address and other issues you have little control over are considered, there are a few things you can do to keep your score from slipping too low. Here’s Asteria’s tips on how to keep your credit score healthy in 2020.
In the Philippines, like many other parts of the world, overdrafts are probably the most common form of short-term debt. In 2020, they are also considered one of the most expensive ways to borrow. This means, like salary loans and high interest credit cards, they should only really be used in emergencies or when there are no other options available. Paying off your overdraft sends a positive signal to lenders as it shows you are capable of managing your money. The agencies that collect data for credit scores will award you more points if you can manage to pay off your overdraft in full and stay well within your account’s balance. Though some use can be inevitable, it makes sense to try and pay off any high cost, short term debt like this as a priority.
This is probably the most overlooked tip when it comes to building credit scores. Many borrowers in the Philippines have a tendency to pay off the smallest amount possible when it comes to credit cards and loans. Though this can mean you have more disposable cash in the short term, over time, it can send a negative signal to creditors. Your score is likely to remain static or to be reduced quite significantly if you only ever pay the minimum amount on credit cards. Even if it’s only a little more, paying off a larger chunk demonstrates that you are taking steps to pay off what you have borrowed as quickly as possible. This means lenders and credit agencies are likely to identify you as a high value customer, rather than a high risk one. In most cases, those who pay off more than the minimum amount on a regular basis are offered higher levels of credit and enjoy a considerably increased score.
If you already have bad credit or a low credit rating, don’t worry too much as there are a few things you can do to steadily increase your standing with lenders over time. One of the most effective solutions is to consider a credit card that has been specifically designed to improve your rating. In general, these cards have very high interest rates, but this is because they are designed to be paid off regularly and in full on a monthly basis. Any regular purchases such as weekly grocery shopping, travel tickets and gym memberships can be paid for using this type of card and providing you can clear the balance each month, your credit rating is likely to improve quite quickly. Credit builder cards are available from a number of sources, but we advise spending some time on comparison sites before you make a final decision. Though you are unlikely to be offered a card with a particularly low interest rate, it makes sense to try and aim for smallest percentage you can find, just in case you have any problems clearing the balance in full due to unexpected circumstances. Credit builder cards, like salary loans, are not designed to be used as a source of regular income and should be treated with respect. Using this type of borrowing irresponsibly will ultimately lead to more financial difficulties further down the line.
Lenders who provide personal loans in the Philippines usually operate in a similar way to other agencies around the world, in that they expect you to repay a fixed amount each month until the full amount of the loan has been cleared. There is rarely an option to pay extra, though some providers will accept this based on certain conditions. In some cases, you may need to pay an “early repayment fee” if you want to clear the amount you have borrowed sooner than you originally agreed, but this isn’t always the case. Credit cards are different, and you can make payments towards them whenever you can afford it. This is a good habit to get in to and reducing credit card debt not only boosts your credit score exponentially, it also frees up lower interest credit that can be used as an alternative to high cost salary loans or store cards. Though it takes a sense of self-discipline and some serious organisation, if you can get into the habit of paying twice or three times in one month, rather than just offering the minimum amount, this can be very good for your credit rating. Unexpected income such as bonuses from work are often frittered away on non-essentials, but using them to make occasional, one off payments towards existing debt is a solid way to build your credit score up.
When you apply for a personal loan in the Philippines, the central financial checking agency makes a note of it. The same thing happens whenever you apply for a credit card, too. This means that if potential lenders notice you have multiple applications for any kind of credit in a short space of time, they are likely to offer you a lower amount and a higher interest rate than somebody who borrows infrequently. A good general rule is to try and take out credit just once or maybe twice a year, with a gap of several months in between. Doing so means your score has time to recover and build up as lenders won’t see you as a particularly high-risk customer. Do make this work, you need to spend some time researching which lenders are the best for you and only ever make applications when you are certain you have found the right provider.