(Updated March 22, 2017)
In case you try applying for a personal loan in your bank, you may be surprised that despite your well off income, you get a cold rejection. “Why am I declined, I got more than enough income to repay the loan on time,” might be the question to pop in your mind.
Unlike what most Filipino thinks, banks and most lenders do not just base their approval with the borrower’s net income. They depend more on your credit report.
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What is Credit Report?
If credit report or credit history does not ring a bell, then you better take some time and get to know how these words can affect your life plans. Lenders, especially banks, know that lending is a risky business to venture in. It greatly involves trust and cash, two things you won’t give a person you don’t think is worthy enough.
How will lenders know that you are creditworthy? They will look into your past loans or debts and how you handled your payments. According to Republic Act No. 9510, the Credit Information Corporation (CIC) must keep a centralized system of credit records for you and your lender’s easy access. If you diligently paid your previous loans, then you will have a positive credit report.
If you diligently paid your previous loans, then you will have a positive credit report.
What are the benefits of a good credit report?
Since most banks and licensed lenders will greatly depend on your credit history to know your paying behavior, a good report increases your chance of getting approved. Needless to say, you are judged by your past actions, how you handled your debt and how well you followed your repayment agreement with your previous lenders.
If you have a good credit report, then you gain the trust of the lenders you are applying to and they may let you borrow a higher loanable amount since they have confidence that you are able to handle it.
As credit cards are also considered as loans provided by banks, your credit report also increases your chance of credit card approval and credit limit. Some lenders also charge lower interest rates since you are a less risky borrower.
If credit history is this important, then what can make my credit report bad?
First of all, you must have a credit history. Lenders also consider borrowers without any credit history as high risk since they have nothing to use to evaluate their creditworthiness. To start building a credit score, you can get small personal loans from registered money lenders and banks.
Credit cards are considered as loans. You can apply for these cards and use them for your usual expenses such as your weekly groceries, then pay your bills on time to avoid penalty fees.
However, if you suddenly canceled your credit card with unsettled bills, or you kept on paying way pass its due, then this strikes on your credit report. Another reason for your credit report to be insufficient is issuing bounced checks.
If you have loans which you are supposed to pay via postdated checks, make sure that you put enough cash in your account to handle the amount written on the check.
Unpaid loans, whether from banks or other private lenders will be recorded to CIC. There are Filipinos who shrug their shoulders and opt to run away so they do not have to pay for their loans. This is a terrible idea since this is the perfect reason for future lenders not to trust you.
In case it is not clear yet, lenders can see your previous repayment records. You may deny having previous loans, but they are still going to know the truth.
It’s too late I already have a bad credit report. Can I still get a loan?
Yes, you can. Though you have to go through the longer, rougher route, you can still get a personal loan through the following:
- Lenders who require a co-borrower
There are lenders who still lend to borrowers with a bad credit report, however, you have to convince someone with a good credit history to co-sign the loan contract with you. The person has to be willingly responsible for the loan. In case you fail to pay, your co-borrower will have to make up for it.
Asking a friend or a family to be your co-borrower is risking your relationship with them. It is better not to turn your personal relationships into financial one to avoid awkward situations in case you failed to settle the loan.
- Your long time bank offering unsecured personal loan
If you have been a longtime client of your bank, then you can try your luck to apply for its own personal loans, however, there is no guarantee that this will absolutely workout since banks have different loan policies. If you get approved, expect a higher interest rate to be charged on your loan.
- Banks offering secured loans
Let’s say you have assets such as a car or a real estate property. If you are in real need of cash, you can apply for a secured personal loan with your property as your collateral. However, you will need to wait for a week or so to get your loan. Also, you have to pay for an appraisal fee upfront to start the loan process.
- 5-6 lenders
Bumbays are known in the country as your go-to lenders, however, they charge 20% interest rate. As they say, ‘Kung gipit, sa Bumbay kumapit.’These lenders easily give you a personal loan without even checking your credit report since they are not formal lenders.
It is enough for them to know that you are regularly earning to pay up either daily or weekly. Do not miss even a single payment or you’ll end up paying more and this may lead to snowballing debt.
There are also other informal lenders same as Bumbays, however, you must know that loan sharks are too willing to give loans to those who are in desperate needs. Then, they will charge interest rates that will soon be impossible to repay. They will suck every cent from you, and in the end, you will be deeper in debt.
- Online lending companies
Online lending companies approve loans for those with bad credit history, however, they may charge a bit higher interest rate compared to what they charge to those with better credit history. They also report your payments to CIC to help you build your credit report.
How to apply for loans with negative credit history?
- Take time to shop around for the best lender
Though you have limited options, it is still better to shop around for lenders who may have better options. Do not settle for the first one you see. Choose the lender with a reputable background and has satisfactory reviews online from previous clients.
- Completely fill up your loan application form
Lenders usually do not start the loan process if the loan application form is incomplete. If it takes a few days before you update, most probably, you will end up declined.
- Submit the needed documents
Same with the application form, if you fail to immediately submit the needed paperwork, then you might be rejected.
- Do not make multiple loan applications at the same time
Through the credit report, the lenders will also see that you have been applying to multiple lenders at the same time. This may be interpreted as desperation to get some cash and you have some trouble repaying.
- Be patient
Since you have a bad credit, take the time to nurse it back to good shape by getting small personal loans from a registered moneylender. Check if the lender is actually registered in Securities and Exchange Commission. Informal lenders will not report your good repayments to CIC, so it won’t do any help for your credit report.
If you want to start building up your credit history, get a loan from Cash Mart. Cash Mart is a registered lending company which offers various online loans that can meet your personal needs. Every on-time repayment will be recorded in your credit report to help you create a satisfactory credit report.
You can have a better chance when you apply for bank loans with a higher loanable amount. By that time, you can even apply for a housing loan or car loan with better deals.