6 Ways To Fix A Bad Credit History
Because there isn’t a lot of education about credit history in the Philippines, you might think that if you default on a loan today, it won’t affect your chances to borrow money tomorrow. Unfortunately, that’s not the case. Even though the Philippines lacks a central credit reporting agency, banks still keep records of your borrowing activity, and they use that activity to decide whether to lend you money or not, and at what rates.
This lack of a bureau is terrible for consumers like you and me, because there’s no sure way for us to know if banks consider us good credit risks or not. In the US, anyone can request a credit report and see everything on it, which gives them a good picture of where they stand. For us, there’s nothing like that. There might be by 2016, when the government-owned Credit Information Corporation (CiC) is finally functional, but until then, we’re in the dark.
However, if you’re having a hard time getting approved for loans or credit cards, it’s safe to assume that your credit history is bad.
How can you fix this?
Fixing your credit is like losing weight: it takes patience, discipline, and there’s no crash diet or quick fix that will give you long-term results. In the absence of a credit bureau, here are some steps you can take to fix your credit:
1. If you don’t already have one, start building a credit history.
A non-existent credit history counts against you almost as much as a bad one. Credit scoring is about predicting your future behavior based on past results, so if banks don’t have any data to go on, they’re going to assume the worst about you. Make things easier for your future self by getting a starter credit card — the easiest one you can qualify for — and start building your credit history by paying responsibly and on time. “A credit card is usually the entry product to the consumer lending market for a lot of Filipinos working for the first time so whatever credit history he/she builds up on his/her credit card is always very important in qualifying for other types of loans later on in their lives like housing and auto loans,” says Alex Ilagan, executive director and spokesperson of the Credit Card Association of the Philippines, in an email interview with iMoney Philippines.
2. Gather your own financial records.
If you’ve defaulted on previous loans, take the initiative and get a certification of full payment from creditors you’ve had problems with in the past so you can resolve any issues with them that might be affecting your credit history. “Going back to each company, requesting for certification, calling every day to follow up is not something that any consumer would jump up to do. But anybody who defaulted in credit payment in the past should have this on his to-do list today,” Salve Duplito said on ANC’s On the Money.
3. If you’re already in debt, don’t apply for another credit card.
You might be tempted to search for new lines of credit to keep your credit utilization 30%. This is a bad idea. Applying for too many cards when you have bad credit will result in you being rejected and your credit score taking a huge hit. And even if you do get approved, a new credit card will lower the average age of your credit history. And if you can’t afford to pay off the new credit card regularly, you’ll just be adding another negative item to your already bad credit report.
4. Get back on track with all your bills.
Remove late payments from the list of reasons why lenders are reluctant to let you borrow money. (In the US, your payment history makes up 35% of your score.) If you’re behind by a month or so on any of your bills, catch up immediately. Catching up and paying on time will be a positive report in your credit history, and staying on time will improve your history in the long run.
5. Pay down your debt.
The less debt you have, the better your credit report will be. Keep your credit utilization ratio (the amount of credit you’re using divided by the amount of credit you have) at 30%, preferably even lower. If you’ve got more than 30%, concentrate on getting it down to a more manageable level. If you can get it down to 10%, you’ll improve your score by a lot.
6. Negotiate with lenders.
This won’t always work, but it’s worth a try. If you’ve been a good credit user but hit a period of time when it was unavoidable to miss payments, you can call up your lender, emphasize your previous good history and how you’ve improved financially since that blip, and they may agree to remove their negative report.