(Updated March 22, 2017)
Got your loan application declined again?
You might be wondering why banks have been turning their backs on you when you need them the most. While you may need to get quick cash now, the problem with your loan application could have rooted from something which started long ago and that is your credit history.
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- Why is a Credit History Important?
Your credit report is one of the biggest factor used by prominent banks and other authorized moneylenders when evaluating your creditworthiness. If you are going to get an unsecured loan, especially in banks, such as the BPI and BDO personal loans, the bank will try its best to know if you are capable of paying the loan with the charged interest. Of course, no lender will approve a loan to someone who did not pay his or her past loans.
- What is the Credit Report definition?
It is a record of your past debts and how you have dealt with it. Were you a responsible payer? Are you able to meet all the due dates or did you default? Banks and other lenders can get your credit report and they can draw their conclusion if you are worth the risk since lenders can’t repossess anything from a borrower who availed an unsecured loan.
- Wait, does this mean someone is keeping your credit records and any bank or financial institution can view your financial data?
Is it even legal? Yes, it is legal according to Republic Act No. 9510 also known as Credit Information System Act. This law mandates banks, other authorized moneylenders, and financial institutions to submit their borrowers’ credit records into a centralized system kept by Credit Information Corporation (CIC). The CIC collects all the records and makes it available to the lender where you have applied for a loan.
- How does this help both the lender and the borrower?
Let’s say you got a loan from Lender A. Lender A will report your repayment activities with them to CIC. When you apply for a loan to Lender B, it will request a copy of your credit report from CIC so it can review your payment history and past credit details including your loan details with Lender A. With this information, Lender B can decide whether to approve your application or reject it. This prevents the lenders from taking too much risk with borrowers who have been delinquent payers.
With this information, Lender B can decide whether to approve your application or reject it. This prevents the lenders from taking too much risk with borrowers who have been delinquent payers.
- Does this also benefit the borrower?
Since the lenders now have an easier way to assess the borrower’s creditworthiness, they devised more unsecured loans for more borrowers to choose from. With the existence of better fair competition in the lending industry, the interest rates are now also more competitive.
- Still worried with lenders sharing your information in a centralized system for other lenders to access?
What about your personal information, banking details, assets, and stocks? There is no need to worry as the financial institutions are only submitting your name, basic personal demographic details, contact information, home address, the credit facility, and your payment activities.
There are only four entities who can gain access to your credit report and they are all mandated to hold strict confidentiality. The Accessing Entities are those authorized by corporations to access your basic credit data. Outsource Entity is the third party provider may handle the basic credit data under strict confidentiality guidelines prescribed by the CIC. Special Accessing Entities are accredited private information whose services involve providing credit reports and other similar information.
How are good credit reports created?
Now that you know your credit report can potentially make or break your loan application approval, you must also learn how to keep it in good shape.
Creating a good credit history is not an overnight miracle. It actually takes years of discipline. Also, if you do not have any credit history, this may also be reflected as negative to most financial institutions because they have nothing to evaluate your payment behavior.
To prevent burning down your credit report, you must avoid making late repayments. All your payments, whether on time, late or default will be reported to CIC. The worst is to have a record of bankruptcy and tax evasion as these will be on your record for five or more years. So, to keep your credit report in good shape, make sure to diligently pay your debt on time.
Also, avoid applying to various loan providers at the same time as this will also be seen in the report. The lender will see the list of those who requested access to your data. A long list of lenders in your record could reflect desperateness on your part. Keep away from loan sharks. They do not use credit reports, thus, they are not competitive and their interest rates are skyrocketing. No matter how diligently you pay your loan from a loan shark, it won’t be reported to CIC.
Take time first to nurse it back in good condition before applying for a loan to have a higher chance of approval. However, if you need to get a personal loan now without much fuss, you can get it from Cash Mart.