The ongoing health crisis has caused immense economic changes for Filipinos, affecting their livelihoods and finances in the process. Months of lockdown amid the threat of a novel virus has made it harder to achieve financial stability, which in effect, has increased credit card delinquency in the country.
Credit card delinquency occurs when a cardholder has a poor payment history and frequently pays bills after the due date. The credit lines of delinquent cardholders are also often fully utilized, which may be a reflection of a very tight cash flow.
“The credit card delinquency rate as of September 2020 has gone up to 11.5%, which is more than two and a half times the delinquency rate at the end of 2019. This was caused primarily by loss of income and unforeseen major expenses, as well as the lockdowns which resulted in travel restrictions and difficulties in making payments on time,” said Credit Card Association of the Philippines (CCAP) Executive Director Alex Ilagan.
Despite this, Ilagan stresses that Filipinos can still turn to their credit cards during this time of crisis without falling into credit card delinquency. They can do this through financial discipline and responsible credit card usage, such as avoiding unnecessary purchases, paying the amount due on time, and ensuring their future cash flow will be sufficient to completely pay off their credit card balances. CCAP shares the following steps that cardholders can take to avoid credit card delinquency:
1. Monitor each card transaction.
This helps cardholders ensure that their cash flow is sufficient to pay-off their accumulated balance. Paying bills on time also helps cardholders avoid their balance from growing out of control, as well as the payment of penalties and interest charges.
2. Make use of installments.
For large purchases such as appliances, furniture, and electronic devices, cardholders are encouraged to use their cards’ installment feature. This helps them spread out their payment over a longer period of time. The pre-computed monthly amortization also fixes the amount of interest they have to pay and makes the amount due every month more predictable.
3. Use your available reward points or cash rebates.
Most banks allow cardholders to use available reward points to pay-off their credit card balances. Some reward points must be redeemed and converted to their cash equivalent, while other banks offer automatic cash rebates on every transaction for certain types of cards. Reward points and cash rebates help the cardholder reduce the total credit card balance they must pay, which helps them avoid credit card delinquency.
4. Have multiple credit cards?
Take advantage of this set-up. cardholders who have multiple credit cards should check the finance charges of each one so that they can use the card with the lowest rate. Additionally, cardholders who have an outstanding balance in multiple cards avail of the Balance Transfer feature. This transfers their balances to the bank that charges the lowest rate.
5. Ask your bank for assistance when necessary.
Most banks regularly offer Balance Conversion as a way for cardholders to manage cash flow more effectively. If cardholders are forced to use their line of credit for an emergency or unforeseen expenses, they can avail of the Balance Conversion feature to convert their large transaction into an installment at a later date. In this time of crisis, most banks also offer more lenient repayment arrangements, either through a lower interest or longer repayment periods.
These steps are essential stepping stones in maintaining a good credit standing and history. Ilagan reminds cardholders that having a good credit history is important, especially in the long run. Lenders such as banks and major financial institutions conduct credit verifications before granting credit to borrowers. This process involves checking the borrower’s credit card history with other credit bureaus who share credit information, such as CCAP, the Credit Management Association of the Philippines (CMAP), the Bankers Association of the Philippines (BAP), and the Credit Information Corporation (CIC).
Bad credit history can disqualify a potential borrower from a credit card or loan that he or she is applying for because past credit behavior is a reliable indicator of credit risk. Furthermore, bad credit history can also affect other aspects of a cardholder’s life.
“Some major companies check the credit history of their job applicants. In some banks, bad credit behavior can also affect possible promotion to higher positions,” said Ilagan. “In the future, other non-financial institutions that provide credit lines for the use of their services, like a post-paid mobile phone connection, may also start accessing credit history before providing service to a new customer.”
Ultimately, a credit card can be a reliable, convenient payment tool and a readily available line of credit for emergencies. It can be especially useful in a crisis, which is why cardholders should always practice responsible card usage and do their best to avoid credit card delinquency.