Are You a Credit Ghost? Here’s How to Bring Life to Your Credit Score
What is a credit ghost?
Some individuals always get declined when applying for a loan from 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 that are very strict with creditworthiness. If they think that you have a high risk of defaulting on 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 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 hear that your friends are starting to purchase their own cars and homes, so you try applying for a car and housing loan. To your surprise, every application was declined!
Being a credit ghost can be the main reason. Since you borrow 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 Work?
To clarify, credit history is the record of your previous loans. 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 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 negative financial records, such as default loans. It does not show your age, salary, occupation, address, or marital status.
When you borrow from Lender A and pay 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.
Credit rating is the opinion of banks and other financing companies on the creditworthiness of a borrower using their own ranking system. Each institution has its own established credit rating system.
However, if they can’t find a credit history, how will they know if you are creditworthy?
How to Increase 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 who 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
Since banks are strict with credit, they usually are mindful of 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. The inability to settle the credit card balance can cause a major impact on your credit score.
Also, most people tend to be more slack with their credit card payments. They believe that you need to keep some outstanding balance to keep their credit records active. The truth is that you need to settle your balance on 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 impulse, better not to have a credit card at all.
Keep Your Credit Score Active
Once you have started building your credit score, you need to raise it with the 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. You will have high credit scores if you make a positive payment habit.
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! Don’t hesitate to talk to them even if you’re a credit ghost.