You have a bad credit history from the outstanding debts that have accumulated through the years. You need a good credit score to get your loan application approved, but at the same time, you need to repay your existing debt to improve your score. 

Are you stuck in this dreadful situation and feel there is no way out? Are you weighed down by your past and worried about the future? It seems that the only way to beat this pattern is to face the present head-on.

Read on to learn how to recover and repair bad credit history and prevent you from getting caught up in this cycle again.

Table of Contents

• What Is a Bad Credit History?
• What Are the Effects of a Bad Credit History?
• How To Clear Bad Credit History: 4 Ways
  • 1. Pay your debts
  • 2. Pay on time
  • 3. Keep track of all your bills
  • 4. Review your spending habits
• How Long Does It Take for a Bad Debt or Credit History To Be Written Off?
• Can You Erase Bad Credit History?
• Tips and Warnings
• Frequently Asked Questions
  • 1. After payment of debts, can I immediately apply for a loan or credit card?
  • 2. Is it possible for my loan or credit card application to be approved even with bad credit history?
  • 3. Can you get jailed for having debt?
• References

What Is a Bad Credit History?

Having bad credit means that you are not managing your credit accounts well. You may be having too much debt which makes it difficult to make repayments on time or any payment at all. This includes all types of loans, credit cards, and bills.

What Are the Effects of a Bad Credit History?

Your payment history and the amount owed are major components¹ of a credit score. Having bad credit² is reflected in a low credit score and makes it difficult for you to obtain new credit at competitive rates. You also miss the chance of enjoying rewards and incentives from your credit card.

Bad credit can have a lasting effect on your financial health. The more money you use to pay interest, the less you save for your future. It is therefore important to mend your bad credit history and improve your credit score as soon as possible.

How To Clear Bad Credit History: 4 Ways

1. Pay your debts

The key to reversing the effects of bad credit history is to pay your debts. This is the only way to put the past behind you and regain the trust of lenders.

You may need to look for other sources of income to increase your cash flow and settle unpaid accounts. Request for a restructuring of debt that matches your capability to pay. If possible, pay more³ than the minimum monthly amortization to clear your debt faster. It will also signify to your lenders that you are now more capable of paying off your debts.

2. Pay on time

While working on clearing all your debts, it is important to monitor your current and incoming bills. There is usually a leeway of 30 days for late payments before being flagged in the credit report. If payment has been made within this period, it will not have an impact on your credit score.

3. Keep track of all your bills

You can set up an automatic online payment scheme for your loans and bills so you don’t miss your due dates. For credit card accounts, you can enroll in an auto-debit arrangement⁴ to automatically deduct the bill from your deposit account. Just make sure that your account has enough funds to avoid further complications.

Take note of the available payment methods for each of your accounts in case you need to manually pay your dues. Look for online payment methods for convenient access.

4. Review your spending habits

Maintaining good credit is rooted in your spending habits. Keep your debts low by planning your purchases and avoiding unnecessary expenses. Do not buy something with your credit card if you cannot match it with a repayment plan. As much as possible, do not acquire additional credit until you have paid your outstanding debts.

How Long Does It Take for a Bad Debt or Credit History To Be Written Off?

Overdue accounts by more than 60 days are considered delinquent and will be reflected in your credit report. If after 180 days it remains unpaid, it will be closed and turned over to a debt collection agency, which gains the rights to collect from you.

Outstanding debt from loans or credit cards is not written off in the Philippines. It is your financial obligation to pay back what you owe.

Can You Erase Bad Credit History?

Negative information on your credit report from the Credit Information Corporation can be retained for up to 3 years⁵ from the settlement of payment. During this period, it still has an impact on your credit rating, though the effect decreases over time. 

Once negative credit data is completely left out of your credit report, it will not affect your credit rating. However, some credit databases might still reflect your bad credit history but with an additional notation to provide context.

Tips and Warnings

• Be persistent when negotiating with lenders. They may reject you the first time  you requested, but be polite and firm in stating your case. Kind words go a long way.
• Rebuild your credit profile. Keep track of your debts. Be responsible with your financial duties by paying regularly and on time.
• Credit utilization ratio⁶ is the amount of credit you spend divided by your total credit limit. You should keep your credit utilization ratio low to improve your credit score. One way to do this is to keep your unused credit cards. When you cancel or close it, your total credit limit will decrease which will negatively affect your credit score. However, make sure that you do not incur fees when maintaining unused credit cards.
• Likewise, think twice before opening a new credit line as it decreases the average age of your credit history⁷ and negatively impacts your credit score. Having a low average means that you are applying for credit too often which may indicate that you need credit to manage your finances well. 
• Protect yourself from abusive collection practices⁸. You can submit complaints to the Securities and Exchange Commission⁹ if you feel that you are on the receiving end of harassment from lending companies or collection agencies.
• Avail of the Interbank Debt Relief Program¹⁰ if you’re having trouble keeping up with your credit card payments. 

Frequently Asked Questions

1. After payment of debts, can I immediately apply for a loan or credit card?

Yes. There is nothing hindering you from applying for a new loan or credit. Although your credit score may still be on the low side, you can already apply for new credit. Present your certificate of full payment as a supporting document.

2. Is it possible for my loan or credit card application to be approved even with bad credit history?

Yes. Financial institutions use various scoring models and criteria for different types of loans and credit cards. Your credit score also depends on the severity of your negative credit history. The discretion of approving new credit lies within the financial entities.

3. Can you get jailed for having debt?

Under the Philippine Constitution¹¹, no person can be put to jail for failing to pay debts. However, a civil case can be filed against you.

References

1. Fontinelle, A. (2021). The 5 Biggest Factors That Affect Your Credit. Retrieved 24 April 2022, from https://www.investopedia.com/articles/pf/10/credit-score-factors.asp
2. Kopp, C. (2021). Bad Credit. Retrieved 24 April 2022, from https://www.investopedia.com/terms/b/bad-credit.asp#toc-examples-of-bad-credit
3. Cruz, E. (2019). Solutions to past due debt. Retrieved 24 April 2022, from https://business.inquirer.net/282215/solutions-to-past-due-debt
4. Payments and Collections. Retrieved 24 April 2022, from https://www.ccap.net.ph/credit-card-basics/payments-and-collections/
5. About your CIC Credit Report. Retrieved 23 April 2022, from https://www.creditinfo.gov.ph/about-your-cic-credit-report
6. Credit Utilization Ratio. (2021). Retrieved 24 April 2022, from https://www.investopedia.com/terms/c/credit-utilization-rate.asp
7. Length of Credit History: An In-Detail Guide. Retrieved 24 April 2022, from https://www.creditstrong.com/length-of-credit-history/
8. Securities and Exchange Commission (SEC). (2019). SEC Memorandum Circular No. 18, Series of 2019 (Prohibition of Unfair Debt Collection Practices of Financing Companies (FC) and Lending Companies (LC).
9. Complaints. Retrieved 24 April 2022, from https://www.sec.gov.ph/lending-companies-and-financing-companies-2/complaints/
10. Credit Card Association of the Philippines (CCAP). (2022). Interbank Debt Restructuring Program (IDRP) Explainer Video [Video]. Retrieved from https://www.facebook.com/CreditCardAssocPH/videos/467948431630084/
11. Senate Bill No. 3333 (An Act Prohibiting Credit Card Debt-Collection Harassment) (2009).