What is a credit ghost?
Some individuals always get declined when applying for a loan in banks and other financial institutions. It’s like nobody sees them as if their applications are like ghosts.
Don’t get me wrong. Of course, there are various reasons why a loan application gets declined. But most banks and other legal lending companies will definitely look into the credit history. Having no credit history can be troublesome because they can’t evaluate your payment behavior.
This is especially true with banks who are very strict with creditworthiness. If they think that you have a high risk to default a loan, then you will get declined. Ever wonder why banks usually require their loan applicants to have a credit card? This is to make sure that there will be a credit record that they can extract.
A credit ghost is someone who never had a credit history with banks or any legal lending companies.
These individuals might be lifelong credit ghost because they pay cash. Others have been abroad for too long or they let their spouses handle their finances. And there are some who just get loans from unregistered lenders.
Why Does Credit Score Matter?
You finished your four-year degree in college. You landed a job with a salary well above the minimum wage. Every now and then, you get a loan from unregistered lenders such as "5-6". You even pawned your ATM. After a few years, you heard that your friends are starting to purchase their own cars and homes, so you tried applying for a car and housing loan. To your surprise, every application was declined!
Having no credit history can be the main reason. Since you are borrowing from unregistered lenders like 5-6 and Sangla ATM, they do not submit your payment records to the credit bureau. Even if you are responsible enough to pay your previous loans on time, these are not documented for banks and legal lenders to see.
If the credit history is not recorded, it implies that it did not exist.
How Does Credit Score Works?
To clarify, a credit history is the record of your previous loans. The legal lenders and banks submit the basic credit data of their borrowers to the credit bureau. And before you go on a rampage for this third-party information sharing, know that this is mandated under Republic Act No. 9510.
The Credit Information System Act had created a system so lenders and banks will see the summary of combined and evaluated information on creditworthiness, credit capacity, credit standing, character and general reputation of a borrower.
The credit bureau only includes your credit information and any negative financial records such as default loans. It does not show your age, salary, occupation, address and marital status.
When you borrowed from Lender A and paid on time. Lender A will submit this record to the credit bureau. Then if you apply for a housing loan in Bank B, it will pull out your credit record from the credit bureau. Since Bank B had seen that you have a positive credit history, you can get a high credit rating.
The credit rating is the opinion of banks and other financing companies to the creditworthiness of a borrower using their own ranking system. Each institution has their own established credit rating system.
However, if they can’t find a credit history, how will they know if you are creditworthy?
How to Bring Life to Your Credit Score?
Here in the Philippines, there are two common ways to bring your credit score to life.
Build Your Credit Score With Loans
There are registered lenders which offer short-term personal loans to people with no credit history. Yes, most banks will want a credit history, but some lenders will give you the chance to kick start your credit records.
Instead of just using the credit report, they also verify the creditworthiness of the new borrower through valid IDs, proof of billing, proof of income and verification calls to the borrower’s contact references. You can get a personal loan and pay on or before the due date to build up your credit score.
Use Your Credit Card Wisely
If you are fortunate enough to get approved for a credit card, use it with utmost care. Banks are strict with credit cards.
Since banks are strict with credit, they usually are mindful with late payment fees. Of course, they have the minimum required payments each month. However, you will just avoid the late payment fee but not the interest charge. Inability to settle the credit card balance can cause major impact to your credit score.
Also, most people tend to be more slack with their credit card payments. They have the misconception that you need to keep some outstanding balanced to keep their credit records active. The truth is that you need to settle your balance each due date.
You also do not have to max out your credit limit. Use no more than 30% of the credit limit if you just want to keep your credit score active. If you have shopping impulses, better not to have a credit card at all.
Keep Your Credit Score Alive
Once you have started building your credit score, you need to raise it with utmost care or else it will turn low or nonexistent again.
Be a responsible borrower to keep your credit score healthy. Make your repayments 100% on time. You can even ask your lender if you can pay in advance, this way you can easily renew your loan and keep the credit active. If you make a positive payment habit, you will have high credit scores.
An active high credit score is the key to your future finances.
It unlocks your access to your car and home loans. Should you want to get a business loan for a major venture, you can get it with your positive credit history. Build your credit history today. Get a personal loan from Cash Mart!