Imagine this: you have your dream job, the perfect home, and a great car. But one day, you get turned down for a loan because of your credit standing. You feel like your world has come crashing down around you. This scenario is an all-too-real possibility if you don’t take care of your credit standing.
Credit is the basis of all financial decisions, including loans and mortgages, so it is important to make sure that your credit standing is able to reflect favorably on you when lenders and creditors look over your report.
Having a good credit standing can help you access better loan and mortgage rates, more favorable terms on credit cards. Maintaining a good credit standing can be difficult, but the benefits are worth it in the long run.
What are the implications of good credit standing and the repercussions of bad credit standing?
In this article, we’ll discuss the importance of good credit standing, and why you should make sure that your credit score is in good shape. We’ll also talk about the different ways to maintain a positive credit standing and the repercussions of bad credit standing.
The Basics of Good Credit Standing:
Good credit standing starts with understanding the basics of how your credit score works.
In the Philippines, Credit Information Corporation or CIC is responsible for collecting and storing the credit data of all citizens. It is the only centralized registry of credit data in the country. It works with companies like insurance firms, telecom companies, and banks to give their customers’ credit history and turn this into coherent reports.
The credit score range in the Philippines is from 300 to 850, with 850 being the highest and BEST available score. A good credit score starts around 700-759, while a fair one falls within 650-699. Anything below 600 is bad.
It’s important to note that there is no ‘one size fits all’ approach to maintaining a good credit standing; the actions that you take are dependent on your individual financial situation, however, you have to consider these 5 factors to maintain a good credit standing:
- Payment History – Lenders want to know if you’re somebody who pays their bills on time. The best way they can tell this is by finding out how you’ve handled your finances in the past.
- Amounts owed – How much of your credit limit are you using? Loans and credit card balances should be kept below 50%.
- Length of Credit History – Lenders want to know that they can rely on you, which means it’s important to have a long history of paying off debts in a timely manner.
- Types of Credit Used – Mixing up the credit types you use, such as a loan, credit card, and mortgage, is recommended.
- New Credit – Taking out new loans or opening new lines of credit can hurt your score temporarily, so it’s important to be mindful when applying for them.
If you keep all these factors in mind when managing your finances, you’ll be well on your way to maintaining a good credit score.
The Benefits of Maintaining a Good Credit Standing:
- Greater Loan Eligibility: If your credit score is higher than average, lenders will view you as a low-risk borrower and will be more likely to offer you lower interest rates, better terms, and larger loan amounts.
- Higher Credit Limit: Good credit standing can also result in higher credit limits, which allow you to complete large purchases or take out loans without having to worry about your borrowing capacity being too limited.
- Lower Interest Rates: With a higher credit score comes lower interest rates. This can save you hundreds or even thousands of dollars in the long run, as it reduces the amount of money that you have to pay back on loans and other financial obligations.
- Easier Access to Capital: If your credit score is high, lenders will be more likely to approve your loan applications. This means that you have easier access to capital when it comes time to make investments or start a business.
- Better Insurance Rates: Good credit standing can also get you access to better insurance rates, as some car and home insurers take your credit score into consideration when calculating premiums.
The Consequences of Bad Credit Standing:
Having bad credit can have some serious repercussions; it can stop you from being approved for loans and mortgages. If you don’t manage your finances carefully and end up with a low credit score, here are some of the consequences you may face.
- Difficulty Applying for Loans: Bad credit can make it difficult to be approved for loans or mortgages, as lenders view you as a high-risk borrower who is unlikely to repay your debts in full.
- Higher Interest Rates: If you do manage to get approved for a loan, the interest rate is likely to be higher due to your credit score. This means that you will have to pay more over time, resulting in an increased financial burden overall.
- Limited Credit Options: With bad credit, you will also find it difficult to open new lines of credit or take out store cards and other types of credit. This can limit your financial options if you ever need to make a large purchase or borrow money for any reason.
- Poor Insurance Rates: Similarly, bad credit can also result in higher insurance premiums. Insurers take your credit score into consideration when calculating premiums and if yours is low, you may have to pay more for coverage.
- Challenge in Starting a Capital: Bad credit can also make it harder to start a business or secure capital for investments. Investors want to know that the person they are investing in is responsible and able to pay back their debts, so bad credit may prevent you from getting the funding you need.
The next question leads to… What if I don’t have a credit score yet?
In the Philippines, around 90% of Filipinos don’t have a credit score yet, according to Sunstar’s report. And if you’re one of them, don’t fret!
At Trans-Phil, we always aim to create solutions for our clients to promote financial inclusivity for Filipinos, regardless of their financial situations, documents, and credit history.
Contact us today for fast and easy solution for your financial needs!