Credit reporting has landed in the Philippines. What is a credit report? How does it affect you? What does it have to do with a personal loan, payday loans or credit cards? In this article, we will tell you exactly what you need to know so that you can make sure your credit history is working for you rather than against you.
With the passing of The Credit Information System Act (CISA) or Republic Act 9510, the state-run Credit Information Corp (CiC) was created. It is a central repository for all credit related information for every Filipino. This system has gone into live use starting this year, 2016.
What is a credit report?
A credit report is an objective report that details all of your credit lines and how you have paid your bills and other debt obligations. Here are the items that go into your credit report here in the Philippines:
- Cyour demographic information such as name and your tax ID number
- The history of each of your accounts and how you paid each of these.
- Public records such as bankruptcies, tax liens and court judgments
- a listing of any accounts that you are disputing – this is especially useful in identity theft situations
- Credit Inquiries – a listing of each time you requested credit.
Think of it as a snap-shot of your entire credit history. It will list how long you have had an account, how you paid each account each time it was due, and how much each credit line is.This allows those granting credit a good way to get an idea of how well you pay your bills.
Until recently, there was no centralized reporting for this type of information. There were several companies that all offered this type of service but it was usually focused on those with larger loans and credit cards. That all changed with the formation of the CIC. It is now operational and every single Filipino will have their own credit profile This will bring about massive changes to our country as many more people will be able to secure credit based on their credit performance. A good example is how farmers are hoping to secure better financing.
How are credit reports used?
Companies that you are seeking credit from will use these reports to help determine if they should grant you credit and then what the terms will be. Terms such as your interest rate and fees. These companies include personal loan companies, banks, mobile phone providers, utilities (water, electricity), internet access, and land line phones.
As you use your new line of credit, such as a credit card, loan, or mobile phone, the company will report how well you make your payments back to the credit reporting agencies. This will allow other companies to have access to how well you use your credit.
How does this affect my personal loan?
Its actually very simple. If you pay your loans and bills on time, its very good for you. You will be rewarded with lower interest rates, larger lines of credit and lower fees. Its bad if you choose not to pay your bills on time. You will either be given the highest interest rates or even denied for credit altogether. This is also true for opening new bank accounts, applying for new utility accounts (electricity, phone, Internet, etc.).
Keep this part in mind – the whole purpose of this entire system is to help you build your credit profile based on your own actions. If you pay your bills on time, you will enjoy the lowest interet rates and best credit offers. But if you don’t, then you will likely be denied credit.
How do you build a good credit history?
- Pay your bills on time, all the time
- If you do miss a payment, don’t hide from it. Contact the vendor and make immediate arraignments to pay it.
- Be sure you don’t request too many types of credit. Requesting too many makes vendors nervous and it will go against your credit history. Apply for those you really need.
- Don’t carry too much debt. Just because you have a line of credit doesn’t mean you have to use it. It sounds counter-intuitive, but the more amount of your available credit you use, the worse your credit profile will look. Try to keep all of your credit lines below 50% usage.
Building Credit takes time. Vendors want to see a long history of payments being made. A few months of on time payments won’t really help you. Usually you will need 12 months of good payment history. Doing this will go a very long way to helping you in the future. Start now and keep making your payments on time.
Here’s a video from ABC-CBN News giving some additional information on the CIC and why your credit report matters.