What is a credit score you ask? Well, basically, it determines how likely lenders are going to let you get a loan.
Know that different lenders have their own standards for rating credit scores, but 700 and higher (on a scale of 300 to 850) is generally considered a good credit rating or score.
Lenders typically use your 3-digit credit score to help them decide if they’ll approve you for a loan or credit card. In general, the higher your score, the better your chances of getting approved. Having a good credit score can also help you save on interest rates.
Of course, a specific score doesn’t guarantee that you’ll be approved for credit or get the lowest interest rates, but knowing where you stand may help you determine which offers to apply for – or which areas to work on before you apply.
Desirably, you can improve your credit score if you have a good credit history.
A credit history is an account of how you’ve used your credit over the years. This, in turn, shows your responsibility in repaying your debts. Banks use this history to determine whether you’ll be likely to make payments on time or not.
The problem with the Philippines, however, is that there’s still no centralized credit reporting in the country like there is in the US, where 300 is a bad credit score and 850 is the best.
Because of this, most big banks either rely on an internal database (record of past and existing clients’ handling of both lending and deposit accounts) or external sources. The most common external sources are the Bankers Association of the Philippines Credit Bureau or the CCAP C4 (Consolidated Cancelled Credit Cards) negative file.
Do I have a bad credit score?
As hard as it may be to believe, many people who have bad credit ratings are not even aware of their situation.
As mentioned, there is not central credit association in the Philippines which keeps track of credit data.
In order to find out exactly what your credit report indicates you can apply in writing to view your credit report, a process which generally takes two weeks. I don’t banks would give you details, however.
Nevertheless, say you applied for a credit card in some other bank and you got denied, it probably means you’ve earned yourself a bat credit history. You probably defaulted in a previous bill from another credit card.
If you happen to get a hold of you credit report, then your credit report holds important information about your financial history that lenders can use to assess your ability to repay your debts. In turn they use this information to decide whether they will lend to you.
If you have a negative credit report finding solutions to improve your situation can be difficult.
Here are 5 suggestions that may help you repair your bad credit.
1. First of all, check for mistakes on your credit report.
In order to most effectively manage your finances, knowledge is the key. Always make sure to know exactly what financial situation you are in. You can do this by obtaining your credit report and reading it over thoroughly.
It is possible to identify and challenge any mistakes you might find on your credit report. There are cases like this for it is not uncommon for credit reports to contain mistakes.
As these mistakes can adversely affect your ability to apply for credit you should make an effort to ensure that your credit report accurately reflects your financial position.
Examples of mistakes that can occur are:
- Personal detail errors
- Mistaken defaults and judgements
- Old defaults and judgements
- Incorrect details of credit history
Should you find any errors on your credit report, you should notify the credit reporting agency of these in writing as listings on your credit report that cannot be substantiated must be removed.
The credit reporting agency will amend your report immediately if your supporting documentation proves the error. Rectifying mistakes can help repair your credit report if incorrect information is contained on the report.
2. Remedy all your defaults by organising a debt consolidation loan.
Your credit report may contain information about defaults and payments that you have failed to meet. Numerous debts with varying interest can be impossible to manage and this can lead to defaulting payments.
Unfortunately, if you have already incurred a negative credit report as a consequence of defaulting payments, there is little you can do. However you should endeavour to ensure this does not continue to happen. One way of eliminating your multiple debts is by consolidating these debts into single debt consolidation loan.
A debt consolidation loan can consolidate all your debts into one sum that has a low comparable interest rate. This means that one low manageable monthly payment is the only debt obligation you will have to meet. This will eliminate all your current defaults and help you manage your debts more effectively. In the long-run this will be of benefit to your credit rating.
3. Put your bills on autopilot (a personal favorite).
If you have multiple debts or are just naturally forgetful it can be difficult to pay all of your debts on time and this can lead to a bad credit rating. Often people have so many debts that one or more bills are overlooked.
However, you do not necessarily need to physically respond to each bill and take action. One solution is to set up all your bills to be automatically debited from your account every month, on time. This way you need never worry about late or missed bills again.
Your bank has plenty of payment options you can negotiate. You can ask your bank to deduct from your payroll your monthly dues. This is truly convenient when your payroll account and credit account are on the same bank.
Nevertheless, setting your bills on autopilot saves you time, decision fatigue, and the risk of defaulting on your credit card bills and eventually incurring a terrible credit score.
4. Add information that can help your credit report.
Your credit report can also reflect information that will positively affect your ability to obtain finance.
For example if you are married, a homeowner or have been with the same employer for over two years, then these are facts that will help your credit record.
Lenders generally look at this information positively and it may assist with your applications for credit. If this applies to you and you believe positive information is missing from your report then you can notify the credit reporting agencies so that it can be added.
5. Start building good credit by maintaining a good credit track record.
In the long-term your goal should be to develop a good credit history. This can only be done by showing your ability to manage your debts effectively. Unfortunately for those with bad credit ratings, the catch is that it can be difficult to obtain credit in this situation. However, by obtaining a debt consolidation loan or a non-conforming loan you can begin to develop a consistent credit payment history. By meeting your monthly obligations on time and every month you can develop a credit history that will reflect well on your credit rating.
To guarantee that these steps are effective you also need to learn and stick to good financial habits. Several key steps to this are
- Spend less than you earn
- Don’t take on expensive and dubious forms of credit unnecessarily
- Don’t make any late payments
- Watch your money carefully
Following these steps will create a framework in which you can fix your bad credit rating and ultimately lead you to a good credit rating and a debt free future.
Here are some additional reminders you should seriously take into account ALWAYS. Your finances is on the line, do not take these reminders for granted.
Be conscious about data protection.
If a lender refuses you credit, it must say why. Under the Data Protection Act, if you are refused credit, and scoring was used to help the lender decide, you can ask for a review of your application.
This gives you the chance to review your rating and see where it may need improving. Alternatively, it gives you the chance to point out mistakes that may be on your record.
All’s not lost if your rating is poor – although it may take time to repair. Bankruptcy details remain on people’s ratings for up to six years, but for most minor problems it should take a year of good credit habits to return a rating to health.
As always, we say, “prevention is better than cure”. Fixing a bad credit score is much much harder than maintaining a good one, or improving a good credit history.
Again, strive to manage your finances better and avoid defaults. It is advisable not to exhaust 100% of your credit limit and leave 30% breathing allowance in it. Key to this of course is to not spend above your means. Do not buy things you don’t need and if you really need to buy things, plan ahead of time how your finances will look like after each purchase. See if you can absorb the risk, if not, do not purchase anything.
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Forbes.com. (2017). Forbes Welcome. [online] Available at: https://www.forbes.com/sites/financialfinesse/2011/07/05/10-steps-to-repair-rebuild-and-protect-your-credit/#6485e5823430 [Accessed 19 May 2017].
wikiHow. (2017). How to Repair Your Credit. [online] Available at: http://www.wikihow.com/Repair-Your-Credit [Accessed 19 May 2017].
iMoney.ph. (2015). 6 Ways To Fix A Bad Credit History. [online] Available at: http://www.imoney.ph/articles/6-ways-fix-bad-credit-history/ [Accessed 19 May 2017].