Credit. The word can mean a number of things. It can mean that you are acknowledging what somebody else did. It can be associated with the lending or borrowing of money. Lots of things. In today’s article, I’m going to talk about credit in terms of borrowing money, and also the tracking of your borrowing and pay back habits.
In the USA, and probably most of the western world, when you borrow money, make payments for money owed and such, there is a “credit reporting agency” that keeps track of your habits. If you are a person who pays your bills late, that is noted, and can be checked on by potential creditors for a number of years down the road. Then again, if you pay on time, or pay more than what is due, that is also noted in your records, and it shows potential creditors that you have the potential to be very responsible with debts.
In short, in the USA and other countries, it is very easy for a company to check on your payment habits, and decide if you are the type of person whom they wish to extend a loan to. If you have a good record with borrowing and repaying money, there is a good chance that you will get additional loans.
Last week, I got an e-mail from somebody that has to do with Credit Reporting Agencies. It’s an issue that I know about and have dealt with before. Here is a slightly edited version (I don’t want to give the personal information of the person who inquired) of the e-mail I received:
Hi there, I am realtor in Canada and am helping a client who
moved from the Philippines to find a home. The banks are asking for a
credit bureau from the Philippines, but it seems that this is a
difficult task. What is the best way to show a credit bureau or
credit information for the past year. Where would my client request
this information and how difficult is it to get?
Well, you see… the problem this person is facing is that there is no such thing as a credit reporting agency, or credit bureau in the Philippines! Yes, you read that right, they don’t have a way of tracking you if you don’t pay your bills, or no way of seeing your credit worthiness if you do pay your bills!
Additionally, if you have great credit in the States, there is no way that you can “transfer” that credit here, so that people know that you are honorable in paying debts that you know. Again, if you leave the States owing a bunch of money, that also cannot get onto your “record” here, because basically there is no record! Now, let me say, if you owe enough money there, and try to skip out on it by moving to the Philippines, that could still lead to trouble for you, because if you owe enough money, they might just track you down, and still come after you here (if the amount owed is enough to justify the cost of doing that).
Now, even though there is no credit reporting here, there still is one way that bad (or good) credit could affect you here. That is if you are dealing with the same company, or a sister company. For example, Smart Telecommunications is a subsidiary of PLDT (Philippine Long Distance Telephone). If you owe Smart a bunch of money, and skip out on it… when you go apply for a landline at PLDT, they will likely have a record of the fact that you owe money to Smart, and they will catch you that way. But, if you owe Globe Telecom (another cell phone provider), PLDT would have no way of knowing, because they are two different companies.
OK, so if there is no credit reporting, how do you get a loan? How do companies decide if you are worthy of the responsibility? How do they know that they won’t be ripped off? What they do is that they look at your employment, your salary, and they check if you have borrowed from them before, and how you were on the payments. You will need to supply other data too, such as a statement from the Police or NBI (National Bureau of Investigation), a clearance from the Barangay Captain (sort of the “mayor” of the neighborhood where you live) that will attest what kind of record you have. Do you have criminal convictions? Are you currently wanted? The Barangay will attest to your character – are you an honest person, or not? Do you cause trouble in the neighborhood? If so, it might indicate that you are not the type of person that they want to do business with.
Another factor is that if you are a foreigner, it will be very, very difficult to get any kind of loans here. If your wife is from here, and has an established record here, she could probably get the loan, but not you. If you are an immigrant, and have been here for a few years, that is when you might be able to start getting some small credit deals, and thus building a record, but only with the company in question. For example, if you get a credit card at a certain bank, and show a good record of credit worthiness, then after a year or two, perhaps they will allow you to upgrade to a better card with a higher limit. Your beginning card, though, even though it is a credit card (as opposed to a debit card) will likely require you to keep a deposit at that bank, as collateral for the credit. The payments will not be drawn against the deposit, the deposit is just there in case you skip town and owe money.
I suspect that in coming years, but possibly many years down the road, credit reporting and record keeping will make it’s way to the Philippines. I mean, it is inevitable for it to happen. Companies can minimize the monetary risk they take with people if such reporting is done, and is centralized, as it is in other countries. We’ll have to wait and see if it happens!
Hi Bob – I worked hard to have a good credit score. Over 800 most of the time. Now it is for nothing? One thing for sure, I am not giving up my US bank account anytime soon. That may be the only thing I can keep when I more. Need a loan? Use them. Internet banking might just work.
Hi Gary – Make sure that you talk to your US bank. They will certainly know that you are living in the Philippines, when you keep logging into your online banking from here (they check your IP address, of course!). Many US banks will cancel your account when they realize you are no longer in the USA. The odds of getting a loan, no matter your credit score, if you are not living in the USA are virtually zero. Reason? If you skip out on it, the odds of being able to get ahold of you, if you are in the Philippines are virtually nil. I still have a US bank account, they know I live in the Philippines. I don't expect they would ever give me a loan, though.
Bob: Interesting topic. Just want to mention one thing… Just being overseas does not mean that creditors cannot report you to US credit bureaus. I have several items in several countries that routinely show up as credit on my US reports. (Like credit cards). So though there is no credit bureau here, your actions here could potentially impact your US credit if they decide to report a delinquency to the US… Most likely from large banks. Think about it… For a loan, they have your passport info, and Metrobank wanted a US bank account reference from me.
Also, your US credit reports don't go away. You should still check them once per year here, if for no other reason than to ensure there is no identity theft. Problem is, the credit bureaus won't let you do this from an overseas IP online. It still needs to be done in person or through a proxy server.
Bob: Certainly, they become less relevent. Inactivity over 5 years essentially means you start from zero credit if you ever return.
Informative topic Bob, I am very surprised that there is not credit reporting in the RP, we have SS# here as you know , do they have a something similar in the RP?
Yes indeed, brian. They have a "SSS" number, which stands for Social Security System. However, that number is not used for credit reporting or anything of the nature.
I am not sure of the law regarding a Philippine corporation reporting to a US credit agency, but if a bank does so, they are subject to criminal prosecution. Philippine banks, especially with the recent loosening of the laws by the Swiss, are possibly the most secret on earth. One of the reasons the Philippines continually has problems with money laundering black lists.
The Philippine government enacted legislation two years ago to provide a national credit reporting agency. The resulting IRR (Implementing Rules and Regulations) assigned responsibility of establishing this agency to the BSP (Central Bank). The bank responded that they will comply as soon as some significant budget is furnished, in cluding people, computer systems and a new building.
Don't expect one any time soon.
Every bank, bank manager is different. I bought a new car the month after I arrived here and rented a house. Since I wanted my savings for something else I financed it for two years through BDO. Standard 20% down-payment, market interest rate, (yeah I know, 12 % being pretty much standard is pretty bad), automatic account debit for monthly payments (none of those troublesome post-dated checks) (auto-debit is actually seen as a bad thing by many businesses here, rather than agood thing, go figure), a copy of my government retirement annuity statement, my wife's TIN and that was it.
My wife and I both signed all the loan papers and chattel mortgage although some business with the bank acts as if she was the only laon maker. I don't care how they address envelopes, got our money, got the car, paid off the loan, got our release (clear title) and I am happy. I know my manager went out on a limb, personally on this, so like everything else with living here, YMMV.
Thanks for reporting on this, Dave. I have never borrowed for anything major like a car or a house here, so getting your report is good info. It sounds pretty much similar to what I expected. I will say this… if not for your wife being on the loan… I doubt you could have gotten it on your own, since you had been here such a short length of time.
Hi Bob – Gotta give you credit – you always seem to pluck the plum out of the middle of the pie and share it with us. (Just got over a little "nursery rhyme research" and Little Jack Horner over in that corner is still bugging me!)
Still, readers need to remember that, while credit is available in The Philippines, Cash is King (as one of your former articles pointed out).
I look at my life here in The Philippines as a wonderful opportunity to wean myself of that dreaded credit monster that's so prevalent and so easily attained and used in the USA. 😯
Hi Paul – Great pun there, giving me "credit" for a good topic! 😆
Glad you enjoyed the article. I love living with no debts to my name, it's a great stress-free way to live!
I am interested in building a credit record here Bob, so can i start with borrowing your car ? 😆
I'm pretty near certain you are correct there, Bob. A foreigner, with no permanent residence status, no property owned, no Filipino co-signer … pretty much impossible I would think. One reason the Philippines has been nearly unscathed by the banking crisis is, Filipino banks are required by law to be much, much more conservative. A PITA at times for those who want to borrow, but OTOH, they haven't been going broke.
Very interesting topic. So how does an ex-pat buy a house? Paying cash is understandable but what if you want to only put down say 30% and finance the rest? I imagine from reading the comments of others that the Filipino spouse is the key. I guess I could always befriend a bank manager. Ron
Hi Ron – It's important to remember that for the most part, the Philippines is a cash economy. You pay cash for the house. Financing is certainly not guaranteed, or even available often. Also, you might pay 12-15% on that mortgage, those are normal rates.
Very nice article Bob. I think there is an advantage and disadvantage to both sides, well at least for the present system. In the Philippines they investigate your capability of payment based on your current income, police records, neighborhood reputation and others they can. I think they give you a similar loan interest but the loan amount is based on your capability to pay. Here in the states my experience showed otherwise. The credit reporting system is very good but it has flaws I think. If you don't have a credit record (like in my case) you are considered bad credit record even if you have a regular job and more than capable to pay your loan. So what they do is they give you a loan with a very high interest, mine was 21%. Rich people here can get from 3.5% to 0%. The way I see it, the least capable you are of paying your loan they make you pay more for a loan and the more capable you are of paying a loan they make you pay less. Which I think why the system (as shown by the result of the housing market) brought itself into a self destruct mode. But, I have to say that if you have a good credit record things are a lot easier for you. On the other hand, you become very vulnerable to identity theft, a case which I never heard of in the Philippines.
Hi Bob, this year we purchased some local land from a neighboring town owner in a private sale and it worked out very well for us. I'm more comfortable with the Philippines more down-to- earth, word-of-mouth style of accessing your personal qualities and reputation here, and whether you would be a good risk. Cultivating a bank manager is an important thing to do, as well as being in good standing with local town and barangay people, friends and neighbors. This will open many more doors for you if you need to procure a loan or make an extended purchase.
And for sure, when it comes down to it as you and others have said,in the Philippines cash is king, and money talks.
HI Bob;
This is an interesting topic, as I consider all the various aspects of a possible future move the the PI. I have the Filipino wife with some land and houses in her name, and a good family image. I wonder if any of the home owners there have homeowner's insurance for typhoon damage, or vehicle collision liability insurance or comprehensive insurance. We Americans are used to insuring everything, and often insurance is required by law, and by lenders.
Last Christmas when we were in Gamu, Isabela; my wife pre-paid her property taxes, with a 25% early payment discount. I had never heard of getting a discount on property taxes for early payment before.
Larry Saum
I have almost always been the type that said, if I can't pay cash I don't need it. However, I have never had issues obtaining a loan from the US or the Philippines. I had excellent credit in the US until I left in 02. Ha-ha, last I checked the Credit reporting agencies their response was "Who are you?". Maybe its been to long since I had something to report!
In the Philippines I have easily obtained loans and each time they wanted either ACR/Passport copies and contract/letter from the company stating I am employed. But then again, I do personally know the bank branch manager and the chief loan officer for my region. Did that make a difference? I doubt it…
Hi Mike – Don't sell those personal relationships short! I do think that having a relationship with a bank manager or loan officer is very, very helpful in obtaining credit here.
Hi Randall – PDC (post dated checks) is really the way business happens here…. it's as common as anything in life.
To Larry Saum,
Yes Larry, you can insure your cars and house and every property you have if you want in the Philippines. I was once an insurance agent there too. The only thing mandatory is at least a third party liability insurance for your vehicle, others are optional. Also, if you get a loan for your vehicle you will be required to insure the vehicle too. You can insure your house against fire, flood and other natural calamities. Although, many filipinos don't bother to insure there house. And for Bob, I know an insurance agent there that is trust worthy and really serves her client well. She is a single mother of three and very hard working, she used to be my manager. I am not sure if I am allowed to mention her name here.
Exactly, Bob. Credit cards, if not well managed, can and will lead to a stressful life. Yet they are so easily obtainable. Banks practically push it down your throat. The more you have, the more you get pre-approved offers in the mail it seems. When I was younger and didn't know any better, I had credit cards that when put end to end was about a mile long. I was using credit cards, instead of cash, like it was running out of style because somehow I felt better using the plastic than parting with my cash. The monthly bills got to the point where I was paying only the minimum each month and the balances on each 18 credit cards kept growing instead of shrinking. Then came the sleepless nights. It was terrible. I had to refinance my house to get rid of those credit cards forever. I felt like I just got out of a bottomless pit when I finally paid off the last credit card. Today, I am strictly on a cash basis. I have just one – only one – credit card that is rarely used, and I sleep much, much better. The one credit card I have is used mainly for transactions that require a credit card. I have no idea why some transactions would not accept a debit card that's as good as cash, yet accept a credit card.
Exactly Randall. it's not that I don't understand, it is that I did not want to comply. In this case, I won. It won't happen always, but you can, sometimes. make the system work for you.
There is no doubt from my perspective that befriending the bank manager works wonders. YMMV.
Hi JuanDaBest – I agree with most all of what you say. Building credit for the first time is something that is not easy to do, but there is a way to do it. It's always best to start small, and make sure you can repay what you borrow. If you don't… well, you are in for many loan-less years ahead!
Juanthebest, I completely understand your point and the way things work here in the US, but like I said, for me (my opinion), it has a lot of flaws. If they want you to build-up a credit record, why not give you the same interest rate at a very low loan amount. You know, try a person's attitude towards repaying a loan first, then gradually increasing the amount of loan as he develops his credit record and trustworthiness. But here, they will slap you with a very high interest rate first (a friend of mine got 26% APR) and then the amount of loan that you can get will be based on what they think you can pay monthly at that high interest. Completely an exploitation of the situation, but since you have no choice, you're force to bite the bullet. Just recently, a famous radio talk show host here in Chicago was furious while interviewing over the phone a certain CEO of one of the three credit reporting bureaus here in the US. Why? He was shock to find out that after many years of having a good name, well known personality, no debt, his houses are all paid, his cars and many other possessions were bought cash his credit rating is only about 715. The reason, he is not a good business partner because he pays cash. Banks can't make money from him through interest. You see the point? Even if you are more than capable to pay a loan yet you don't have some form of "good credit history" they can't give you a good deal. To me, it is greed. It is not about helping us, people. It is about them making money. Why not send somebody and investigate personally the financial status of a person rather than just looking at numbers from credit bureaus.If you think the system here is the best, you are so wrong. In fact, the world bank and IMF rank most of the banks in the Philippines as more stable than banks here in the states. Have you heard of private banks in the Philippines being bailed out by the government? Here, almost all banks and other financial institutions were bailed out starting from the biggest ones. But, like I said, that is my opinion which I am entitled to and you are entitled to your own opinion too.
Let me share another experience of mine. When I bought my car, my creditor slapped me with 21% APR because I have no credit history, and they showed me 7 cars to choose from based on my credit status. They dictated what amount and which car I can get. They told me that after a year of regularly paying my loan (credit build-up), they can get me into another loan (refinance) with a much lower interest and/or I can return the car and get the car that I really want. Well, after a year of regularly paying my loan ($400/month) and with a good credit rating from Experian, I went back there with a new downpayment for another car or to refinance my existing car. But, you know what they told me? They can't get me into another loan or re-finance my car because I no longer have a regular job (I got laid off) and although I am receiving unemployment benefit (1/3 of my previous salary) they don't consider it as a source of income. I told them then that I have been paying my car for six months now with my unemployment benefit and if you could lower my interest say down to 10% (which is still high) that would make me even more capable of repaying my loan. But they said, policy is policy. No regular paycheck no loan, unemployment benefit is unacceptable. Now, tell me if this is the best. It is clear that they don't care about me, all they care about is numbers/money. And you know what I learned? It is very easy to manipulate the credit rating system so that you can get a house loan with a "good credit rating" even if you really don't have the means. And a lot of people know that too and they did it and many of them bought houses even if in reality they were not supposed to be qualified. It is just a numbers game afterall and it backfired to the financial system, as what we would say in the Philippines; "they were just being fried in their own oil". It was like a balloon, it seemed big, but inside is just air and in an instant situation turned south and it bursts into nothing. It collapsed. And many executives of financial institutions still received millions of dollars of bonuses from bail-out money even if they managed their companies straight to bankcruptcy. What a wonderful system.