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No, Don't Add to Cart. Here's How to Be a Smart Credit Card Owner

New year, new financially responsible you.
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Suck at money? Congrats. You’re part of the 99 percent of people in their 20s floundering when it comes to finance. Adulting is hard, and money is harder—especially when it’s your own and not your parents. My Two Cents is here to break down everything you need to know about finance, business, and entrepreneurship. We’ll tackle all the basics, from how to get a business permit to how to invest in stocks, to educate the fledgling adults on how to not go broke.

Welcome to the idiot’s guide to money. Next lesson: how to be a smart credit card owner.

Just got your first, second, or third credit card in the Philippines? Well, empty your cart right now. We know that having a credit card is making online shopping even more addictive, but your credit card isn’t a hall pass to make irresponsible financial decisions.

The pandemic has fast-tracked our transition to a digital economy as bills payments and purchases move online, leading to more Filipinos availing of credit cards to catch up with the times. But the sad truth is, just because more people are using credit cards doesn’t mean they’re using them correctly.

According to the Credit Card Association of the Philippines’ (CCAP) executive director Alex Ilagan, the rate of credit card delinquency went up by 11.5 percent by the third quarter of 2020, up 2.5 times the 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 Ilagan.

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Credit card delinquency is often mistaken for credit card fraud, which are two different things altogether. Credit card delinquency refers to falling behind on monthly payments and basically not being a smart credit card owner, resulting in bad credit, while credit card fraud refers to hackers, thieves, etc.

Unlike in cases of credit card fraud, wherein the credit card owner is not at fault and is insured by the bank, credit card delinquency rests solely on the shoulders of the credit card owner. Many are duped into thinking that having a credit card means you have more money, but it only ensures that you have more access to money—money you loan from the bank and eventually have to pay back. Being a smart credit card owner is not easy, how do you transform bad credit into good credit?

Well, the CCAP has shared a number of steps for cardholders to become more financially responsible and disciplined when using their cards. New year, new me, as they say. If 2020 taught us anything financially, it’s that it’s time to be smart about money. Here’s how to turn your credit around.

1| Monitor Each Card Transaction

Download the bank app connected to your credit card, and look at it religiously. Before the advent of mobile banking, cardholders had to write down or memorize all their purchases so they wouldn’t go overboard before the monthly statement arrived. So count yourself lucky that there are now countless app out there made to remind cardholders of their limit.

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Keep track of cash flow and your balance unless you want to face hefty overlimit fees and interest charges. With all these apps around, you have no one to blame but yourself if you choose not to track your balance (tough love is necessary).

Special mention: Citibank

Citibank PH’s app deserved a special mention. It’s a no-fuss app that tracks every purchase real-time. You’ll see any transaction appear just seconds later on the app, so you can stay updated. It’s also easy to configure the settings of your credit so you receive a text message upon every purchase, also lowering risks of credit card fraud.

2| Make Use of Installments

If you’ve got plans to make a big purchase, like an appliance, furniture, or gadget, then it’s a good idea to avail of your credit card’s installment features. Technically, credit cards already offer installments since they have a “minimum” payment requirement with every monthly statement. But if your minimum payment is only P1,000 for a P20,000 outstanding balance with a 3.5 percent interest rate, the interest rate charges on the leftover balance might just render your minimum payment obsolete.

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So, opt of installments, and make a couple of calls to your bank if you have to. The pre-computed monthly amortization can make your monthly payments and interests more predictable and easier to manage (in other words, less math for you).

Special mention: Robinsons Bank

Robinsons Bank DOS Mastercard operates on a two-gives basis, meaning that every purchase you make is automatically converted to a two-month installment payment, with no added interest and no minimum amount required. That means you don’t have to stress at the end of every month about paying your card in full, since it will automatically cut your bill in two.

3| Use Reward Points and Cash Rebates

Before you write off another text from your bank as spam, take a moment to actually read it. Banks are becoming increasingly fond of reward points and promos, and most of the time, they’re a huge perk. Keep an eye out for tips on how to use your reward points, as these can sometimes be used to pay off a portion of your credit card points. Points can also be converted into cash rebates at some banks, while others offer automatic cash rebates on every transaction, depending on your type of card.

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Points and rebates can help you manage your credit card balance. The trick is to know the ins and outs of your credit card and take full advantage of them. Big banks like BDO, which is tied to SM, and BPI, which is tied to Ayala malls, have a steady stream of promos for you to earn points and get the best deals.

Special mention: Security Bank Complete Cashback Mastercard

Cashback rates can differ depending on the type of purchase. Some cards are geared toward gas and car-related purchases, while others have better rates for dining and leisure. Security Bank deserves a special mention for its Complete Cashback card since it offers a five percent cashback rate for something you purchase all the time: groceries.

4| Have More Than One Credit Card

If there’s one quote to live by when it comes to your finances, it’s this: Don’t put all your eggs in one basket. We already know that we’re supposed to have more than one savings account, but that also applies to credit cards. Now we’re not saying you should get as many as you can, because that just might make your credit card delinquency worse. Instead, we suggest having more than one credit card so you can take advantage of the finance charges of each card. Some have lower rates than others.

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Tip: You can avail for a balance transfer for your cards. That means you can transfer the outstanding balance of one card to another card with a lower rate. Just call your bank to see what they can do.

Special mention: EastWest Priority Visa Infinite

This card has a 1.99 percent interest charge. We need to repeat that for emphasis: 1.99 percent. That’s the lowest we’ve seen so far among credit cards in the Philippines. This card also has a bank transfer feature. Did we mention that the annual fee is free? Forever?

5| Keep in Contact with Your Bank

Nowadays, we resort to online banking for most transactions and needs. But it also pays to keep in contact with your bank, whether in an actual branch or through their customer service hotlines. If you have an emergency that requires a big payment, you can ask your bank for a Balance Conversion in which you convert a large transaction into an installment at a later date. You can even request for a lower interest or a longer repayment method if you present a valid case to your bank. Sometimes you can work around a big credit card balance you’re unable to pay immediately, it’s just a matter of reaching out and contacting your bank.

Now, we know this is easier said than done. And we don’t have a special mention for this section, since we’ve yet to find a bank with a stellar customer service track record. All banks have their faults, but we believe that when it comes to customer service, it depends more on the branch and less on the bank. But if your bank doesn’t have many branches, then keep their hotlines on speed dial and their email in your contacts.

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Why Does Good Credit Matter?

Repaying your credit card bills is not an option—you have to do it. If you want to maintain a good credit standing and history, pay your bills, use installments, and avail of cashbacks. Good credit sets the tone for your financial future. If ever you plan to take out a loan to buy a house or a car, lenders will conduct credit verifications to see if you have a history of paying on time.

Credit card bureaus like the CCAP, Credit Management Association of the Philippines, Bankers Association of the Philippines, and the Credit Information Corporation all have access to credit card history and information of cardholders. This information tells them if someone is trustworthy and reliable enough to repay a loan or balance, or if they have a history of bad credit.

Bad credit can stop you from buying a house, purchasing a car, and maybe even from getting a job.

“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.”

So, in 2021, make it a goal to establish good credit for the sake of financial stability. You never know when another crisis might hit.

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Anri Ichimura
Section Editor, Esquire Philippines
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