MANILA, Philippines – THE recent commemoration of Credit Consciousness Week (April 24-30, 2012) was a special opportunity to learn about the importance of good credit.
Last week, we discussed how important credit score is in personal finance. It can affect our application for mainly all types of loans: While good credit helps boost credit score, bad credit almost always pulls it down.
The Financial Consumer Affairs Group of the Bangko Sentral ng Pilipinas, headed by Deputy Director Teresita Lisama, explained that most credit score improvements take place over time and require an ongoing effort on the part of the financial consumer.
“We should be cautious of all our credit transactions as these could have a lasting effect on our credit reputation,” the FCAG, in its Weekly Wealth Watch newsletter, stressed.
Here are some suggestions from the FCAG on how financial consumers can maintain a good credit standing and ultimately find favor with creditors:
On Payment History:
Delinquent payments, even for a few days, can drive down our credit score. Thus, it is important to make all our payments on time. This includes payment on all kinds of dues such as utility bills, medical expenses, and even library fines.
If we have missed some payments in the past, we should pay them off and stay current. The impact of past credit problems on credit score fades with time and as recent good payment patterns show up in our credit report.
We should contact our creditors as soon as we know that we would be having problems with payment. We should then try to work out suitable payment arrangements with them.
On Amounts Owed:
We should keep our borrowings and total debt load under control.
If we have amassed a significant amount of outstanding debt, we should refrain from borrowing more and work toward lowering our balances.
We should pay off all debts and should not move them around. Owing the same amounts, but having fewer accounts open, can lower our score if we max out the accounts involved.
On Length of Credit History:
Instead of closing down accounts, it would be to our advantage to keep older accounts in good standing open as length of credit history plays another important factor in our credit score.
Nonetheless, we should avoid simultaneously opening several new accounts in efforts to build credit history as new accounts will lower our average account age. Rapid account buildup can likewise look risky for new credit users.
On New Credit:
We should apply for new debt only as needed.
When shopping for a new loan or credit card, we should be careful to do it in a relatively short span of time. Spending too much time on loan or card hunting could give credit agencies the impression that we are constantly looking for credit.
On Type of Credit Used:
Having a mix of credit cards, installment loans, and loans with fixed payments can help raise our credit score if we manage our payments responsibly.
We should always remember that there is value in protecting our credit rating and building a good credit record over the years. As the FCAG always emphasizes, the use of credit should be matched with responsibility.
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