Credit can be a powerful tool in helping people achieve their financial goals. Access to credit allows people to buy things now, based on agreements to pay for goods and services in the future.
However, there is an important difference between responsible or “good” credit and unaffordable “bad” credit.
The difference between good credit and bad credit
Whether it’s used to make life-improving purchases, deal with unexpected bills, or take advantage of certain benefits like bonus points or special discounts, good credit is credit that borrowers can afford to repay.
Since credit is a tool, there are times when the tool is misused. Credit becomes bad credit when you use it to take on debt that you can’t repay. The longer you go without a payment, the more likely you are to incur fees, damage your credit score, rack up interest, and potentially face legal problems. If you burden yourself with the responsibility of dealing with unpaid debt that you can’t afford, you risk missing out on better financial opportunities that can result from responsible use of credit.
The impact of bad credit
The impact of bad credit may be seen as a possible factor contributing to the negative stigma of credit in the Philippines. In that country, the word “credit” is synonymous with the Tagalog word “utang,” which carries with it the concept of bad debts and financial irresponsibility.
recent TransUnion Philippines Credit Perception Index Research highlights how negative stigma affects how Filipinos view credit. The survey results show that 58% of Filipinos believe that users of credit products tend to overspend, while 55% do not want to go into debt.
As a result, Filipinos rely heavily on family, friends, and other informal sources of borrowing rather than turning to formal financial institutions. These sources include unregulated “5-6” moneylenders, who issue small loans often charging high interest over an agreed period, and “sangla-ATM” conspirators, who require a physical ATM card and a personal identification number ( PIN) as loan collateral. Reliance on these measures often puts borrowers at a huge disadvantage, making it difficult for them to get out of debt.
The importance of supporting responsible credit use
While there is still much work to be done to completely eliminate the negative stigma associated with credit in the country, more and more Filipinos are seeing the opportunities that come with access to credit. Results of the TransUnion Philippine Consumer Pulse Study for the third quarter of 2023 show that 62% of Filipinos believe that credit can help them access new opportunities that improve their quality of life (i.e. buy a home, start a business, fund my education, purchase a property) Automotive) – an increase of four percentage points from the second quarter 2023 survey results.
Other findings from the study found that 72% of Filipinos believe that credit is widely available and easy to apply for as long as they demonstrate good financial management, an increase of four percentage points from the previous quarter. When asked whether they would be willing to have credit accounts such as loans and credit cards, 41% of Filipinos said they were satisfied, an increase of 6 percentage points from the second quarter of 2023.
As perceptions change and more Filipinos become accustomed to owning credit products, the formal financial sector must continue to work together to educate Filipinos on the responsible use of credit and how to pave the way for better financial inclusion in the country .
To help promote responsible credit use, TransUnion Philippines’ credit reporting solutions help people understand and improve their credit status. Checking your credit report can help consumers understand the factors that affect their credit scores and can help them take action to improve their credit scores. This can help people take action faster to improve their credit profile.
Particularly for New to Credit (NTC) consumers who are limited by lack of credit history, alternative data such as telecommunications data can serve as a valuable tool in assessing a consumer’s creditworthiness. As a global risk information provider, TransUnion Philippines leverages information and insights derived from alternative data to help lenders identify lower-risk borrowers and offer them better terms and pricing for credit products and services. This is what TransUnion Philippines means by using information for good.
Credit creates opportunity. By emphasizing the benefits of good credit and continuing education that promotes responsible use of credit, it is possible for more Filipinos to get more out of life.
Get your TransUnion Philippines credit report here.
