When you apply for a loan or a credit card, banks and lenders consider your credit score and credit history to evaluate your creditworthiness. Your credit score is a numerical indicator of your creditworthiness based on your credit history and payment behavior. In the Philippines, there is currently no centralized credit reporting system, unlike in the US, where a credit score of 850 is considered the best, and a score of 300 or lower is deemed bad. Nevertheless, banks and lenders in the Philippines still look into your credit score and credit information to assess your creditworthiness.
Your credit history, on the other hand, is like your report card in college. It shows your past and current credit accounts, payment history, and credit utilization, among others. The higher your credit score, the more favorable your credit history is, and the more creditworthy you appear to banks and lenders.
If you have a low credit score or a poor credit history, it may be difficult to apply for a personal loan or another credit card. Therefore, it is crucial to boost your credit score and improve your credit history to increase your chances of getting approved for credit. A good credit score and credit history demonstrate to banks and lenders that you are reliable and responsible in paying off debt, making you a low-risk borrower.
Improving your credit score takes time and effort, but it’s worth it in the long run. To boost your credit score, you can start by paying your bills on time, keeping your credit utilization low, and monitoring your credit report for errors or inaccuracies. With a better credit score and credit history, you’ll be more likely to get approved for credit and receive better interest rates, saving you money in the long run.
HOW TO ENHANCE YOUR CREDIT SCORE
Want to increase your credit score to improve your chances with banks? Check out these tips to boost your credit score:
1. ENHANCE CREDIT SCORE
If you’re using up your entire credit limit to accumulate credit card points, you might want to reconsider. To improve your credit score when applying for loans, it’s important to maintain a low debt-to-credit ratio. Experts advise limiting your credit usage to 30% of your credit limit, which translates to a maximum account balance of P30,000 if your credit limit is P100,000.
2. ENHANCE CREDIT SCORE BY MAKING DECENT CREDIT HISTORY EARLY ON
If you’ve been employed by the same company for more than a year, it might be a good time to consider applying for a credit card to establish a positive credit history. Just remember to be a responsible spender and pay your bills promptly.
3. ENHANCE CREDIT SCORE BY BLENDING THINGS UP
Personal loans can be a beneficial financial tool for millennials since they don’t require collateral and often have lower interest rates than credit cards. By building a solid credit history with personal loans and credit cards, millennials can eventually qualify for larger loans like car loans.
However, it’s important to note that personal loans do have some drawbacks. For one, they often come with fees such as origination fees and prepayment penalties. Also, if you don’t have a good credit score, you may not be able to qualify for a low interest rate. Therefore, it’s crucial to shop around and compare loan options to ensure you’re getting the best possible terms.
4. ENHANCE CREDIT SCORE BY ON-TIME PAYMENT
Making timely payments for your credit card bills and personal loan payments is crucial for building a good credit score. However, it’s not just limited to these payments. You should also make sure to pay your utility bills, car payments, and mortgage on time since banks and financial institutions have access to all of your financial activities. By consistently paying on time, you increase your chances of getting approved for a loan.
In addition to paying on time, it’s also essential to keep a record of all your financial activities. This includes copies of your bills and payment receipts. These records can be useful when negotiating loan terms during your application process. They serve as proof of your payment history, which can be helpful in demonstrating your financial responsibility to lenders.
So, paying your bills on time and keeping a record of your financial activities can help establish a good credit score and improve your chances of getting approved for a loan. It’s important to be diligent in managing your finances and taking proactive steps to maintain a positive credit history.
5. SPEND WITHIN YOUR CARD LIMIT
Exceeding your credit limit can have significant and detrimental consequences. In addition to damaging your credit score and record with banks, you will also be charged over-limit fees. For instance, Citibank charges a P500 fee for going over your limit, and if your account balance remains over the limit in the following months, you will be charged an additional P500 each month. This not only wastes your hard-earned money on unnecessary fees, but it can also lead to more significant financial problems.
By staying within your credit limit, you not only prevent over-limit fees, but you also avoid incurring additional interest charges that result from carrying a balance. This can help you save money and improve your credit score in the long run. Additionally, being mindful of your spending habits and setting a budget can also help you manage your finances better and make the most out of your available credit.
So, it’s important to be responsible with your credit and spend within your limit to avoid unnecessary fees and potential financial troubles. By doing so, you not only protect your credit score but also develop good financial habits that can lead to long-term financial stability.
6. TWO CREDIT CARDS
Using a credit card responsibly can help build your credit history and establish your financial responsibility in terms of debt payment. However, it’s essential to be mindful of your credit card usage, as it can backfire if you max out your credit limit on each card. Ideally, you should aim to keep your credit card balances low and pay them off in full each month to avoid accruing high-interest charges.
It’s also important to note that banks consider the number of credit cards you have and the total account balance of all your cards when assessing your creditworthiness. Having multiple credit cards with high balances can negatively impact your credit score and make it difficult to qualify for loans or other financial products.
As a general rule, it’s recommended to limit yourself to two credit cards and keep your balances low to maintain a good credit score. This way, you can establish a positive credit history and increase your chances of getting approved for loans or other financial products in the future.