Lending is one of the biggest businesses in finance. Banks, financing companies, credit card companies, and government lending institutions all participate in it. We probably all need at least one loan in our lives whether home loan, car loan, salary loan, or personal loan. In these, we need to establish a good credit.
In the US, FICO score is the most-widely used credit score to assess an individual’s creditworthiness, the likelihood that a person pays his or her debts. We still don’t have a centralized credit score here in the Philippines, but the development of a centralized credit bureau is already in place with Credit Information Corporation or CIC.
Currently, most banks and financing companies use the database of Credit Management Association of the Philippines or CMAP to check if a person applying for a loan has a hit. The database contains credit and collection data from member banks and financing companies.
So how do you build good credit standing? Here are some tips:
Clean Up Negative Items
The most important thing when it comes to improving your credit score is removing negative items such as late payments and collections, according to Ryan Greeley from Better Credit Blog.
Dispute inaccurate information on your credit report. Offer to pay the debt if the collector agrees to remove the negative entry from your credit report. And for any debt negotiations or settlements, never agree to anything over the phone. Get everything in writing.
Reduce Your Debt-to-Income Ratio
Creditors don’t mind giving you money if your financial reports show you can afford it. That “appearance” is what forms the foundation of your credit, combined with your ability to pay bills in full and on time.
It isn’t always what you make; it’s what you spend. Overspending can cause numerous credit fractures that can, in turn, damage your overall credit. To improve your chances of receiving more significant lines of credit in the future, pay off as much debt as possible.
Avoid Past Due Accounts
In terms of hierarchy, payment of bills is considered more important than payment of loans. How can you establish good credit if you have unpaid bills? Avoid past due accounts on your utility and credit card bills. While it is true that nobody gets jailed from non-payment of credit card bills, it would certainly leave your name in the negative list that makes it nearly impossible for you to avail of any type of loans in the future.
Just this year, telecommunication Globe and Smart had a text blast telling they are giving credit data to CIC as part of the formation of a centralized credit bureau. This is of course only available to postpaid subscribers.
It suffices to say that you should also have credit. If you don’t have any credit data, then how can they assess your credit in the first place? Get a credit card. Avail of a salary or personal loan. But make sure that you pay them full and on time to establish a good credit standing.
Don’t ruin your credit by thinking you can get away from non-payment of your bills and loans. Building a good credit enhances your chances of not only getting higher loan amounts but also lower interest rate.