You’re Putting Your Financial Future At Risk Without A Credit Card
Credit card penetration rates in the Philippines are among the lowest in the region, at a mere 3-4% (compared to Malaysia and Singapore who have rates of over 25%). Cold, hard cash is still king in the Philippines, with over 90% of retail transactions paid for with cash. A lot of people in the Philippines still don’t have or use credit cards.
But not having a credit card is a big mistake! Read on to find out why:
You’re ruining your own financial future by not having a credit card
There are plenty of reasons to get a credit card. Credit cards, when used responsibly, are an incredibly convenient way to handle your finances. It’s also safer than carrying a lot of cash around, and comes with perks and discounts.
But the most important reason to have a credit card is to build a good credit history easily. There are other ways to build credit, but none of them is as easy as being on time with your credit card payments, especially if you’re a young professional with no auto or home loans yet.
“A credit card is usually the entry product to the consumer lending market for a lot of Filipinos working for the first time,” says Alex Ilagan, executive director and spokesperson of the Credit Card Association of the Philippines (CCAP), in an email interview with iMoney Philippines.
“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.”
Without a credit history, lenders will think you’re a credit risk when it comes time for you to borrow from them. “Someone with no credit cards … tends to be higher risk than someone who has managed credit cards responsibly,” according to myFICO, which produces the models followed by TransUnion, which many major banks in the Philippines use to get credit reports on applicants.
If you don’t have a credit card now, when you apply for a home loan in the future, you’ll have no credit history that the lender can use to try to figure out if you’ll pay them on time or not. Not only won’t you be able to get the best rates — you might not even get approved at all.
So getting a credit card now, while your debts are low and you are capable of paying it off completely every month, could be the best and easiest money move you can make. Simply using credit cards responsibly will show that you are mortgage-worthy, and you’ll make your financial life easier in the process.
As we’ve said before, there’s no government-sponsored centralized credit reporting bureau in the Philippines yet, but that doesn’t mean that you can’t start building your credit right now. (Besides, TransUnion, a private credit bureau, has been operating in the Philippines since 2011, helping the biggest banks in the country make decisions about your loan and credit card applications.) Look at these five starter credit cards with a low barrier to entry, apply, and establish your good credit history.
But won’t a credit card automatically cost you a lot of money?
No! If you use it right, you won’t have to pay a lot in fees and interest. The Metrobank M Free credit card, for example, has no annual fees for life and only requires P15,000.00 monthly income — perfect for the young professional just starting to build up credit. If you pay off your whole bill at the end of the month, you won’t have to pay a centavo in interest, and combined with no annual fees, you’ll be on your way to building credit in no time at no extra cost to yourself.
And if you’re suspicious of credit cards, you don’t have to use a credit card for ALL your expenses to build credit. Even if you only use it sometimes, like once a week, for example, it still goes a long way towards helping build your creditworthiness if you pay it off regularly and on time. You can even get out of paying any annual fees if you’re a good customer and just ask for it to be waived.
What’s important is the age of your credit card, because having a credit card for more than one year will reflect really well on your credit history, and make it easier to apply for loans, some of which require that you are a long-term holder of at least one credit card.
Using your credit card regularly and paying it off on time can make life easier for the future you when you find the perfect home you want to buy, or the perfect car, and need to get a loan with lower interest rates. As long as you pay it off every month, you can enjoy the convenience and perks of this powerful financial tool while also building a good credit history while you’re at it.