The Credit Card Association of the Philippines (CCAP) reminded the public to be responsible credit card holders as loan defaults surged by more than twofold because borrowers are having a hard time meeting payment deadlines during the crises.
The industry group said in a statement released last Monday that credit card delinquency rate rose to 11.5 percent as of end-September, which is over 2.5 times than what was registered a year ago.
The CCAP explained that credit card delinquency occurs when credit cardholders have poor payment history because they settle loans after the due date. In addition, these cardholders usually maximize the balance of their credit lines as cash flows are constrained.
CCAP Executive Director Alex B. Ilagan said that the credit card loan defaults were “caused primarily by loss of income and unforeseen major expenses, as well as the lockdowns [that] resulted in travel restrictions and difficulties in making payments on time.”
With the imposition of lockdown measures amid the pandemic, several businesses closed temporarily while some were forced to shut down, prompting the surge in joblessness in the country. This caused major concerns over the revenue channels of many households.
Ilagan, however, pointed out that by exercising financial discipline, Filipinos can still use their credit cards amid an economic crisis without having loan defaults.
For example, he said credit cardholders should avoid unnecessary purchases, should pay the amount due on time and make sure their future cash flow will be enough to settle the credit card 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,” CCAP stressed.
For big-ticket purchases—including appliances, furniture and electronic devices—the industry group advised cardholders to pay in installments, so that the payment is spread out over a longer period of time. The pre-computed monthly amortization also helps borrowers to make the regular payments more predictable, the group said.
It would be beneficial for the cardholders to maximize the available reward points or cash rebates, CCAP said, noting that most banks are allowing borrowers to use them to settle a portion of credit card balances.
In addition, the industry group said that cardholders may ask assistance from their banks when necessary. It noted that most financial institutions are offering “more lenient repayment arrangements,” such as lower interest or extended payment deadlines, during this pandemic.
Good credit position
Ilagan emphasized that having a good credit history is beneficial for the credit cardholders in the long run.
Banks and other financial institutions, after all, are conducting credit verifications before extending loans to borrowers, he added.
The review involves looking into a borrower’s credit card history with other credit bureaus, including CCAP, the Credit Management Association of the Philippines, the Bankers Association of the Philippines and the Credit Information Corp.
Apart from creditworthiness, having a good credit position also affects “other aspects of cardholder’s life,” CCAP said.
“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,” Ilagan explained. “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.”