Credit card penetration in the Philippines remains low.[1] Although the pandemic has driven consumers to transact online, around 42% of Filipinos still prefer cash payments[2] over credit cards for online shopping. What’s stopping potential eligible cardholders in the Philippines from getting a credit card? Are credit card misconceptions a factor in the low number of Filipinos owning one?
According to the 2018 Moneymax Financial Life Survey, Filipinos don’t want to apply for a credit card for three main reasons: high interest fees, stringent approval process, and lack of financial discipline. However, many Filipinos also fear credit cards might put them in jail or worsen their financial situations.
Credit card myths have long been hindering Filipinos from leveraging bank products that could improve their cash flow and financial health. Moreover, having wrong assumptions about credit cards can also hurt your credit score, cost you more money, and make you miss out on great credit card benefits.
It’s time we ditch these common credit card myths and know what the real deal is about credit cards.
Top 10 Credit Card Myths in the Philippines
1. Credit Cards Will Drown You in Debt
“Huwag kang kumuha ng credit card! Mababaon ka lang sa utang.”
Heard this from your family or friends? Many Filipinos are still afraid of owning a credit card because they believe it will only leave them in debt due to interests and other charges.
Credit cards are also perceived as a big temptation to overspend. With a credit card in your wallet, it’s easier to give in to impulsive buying. Well, it’s somewhat true, but it depends on how you use it. You can actually save money if you’re strategic about using your card.
The mere use of credit cards will not drown you in debt. The irresponsible use of credit cards because of lack of self-control and discipline will.
You just need to be disciplined each time the urge to splurge props up. You also need to learn how to take advantage of credit card rewards, rebates, and promos.
The responsible use of your credit card also helps build your credit score, which banks and lenders use as a basis for loan approvals. By paying your credit card bills on time and consistently, you can build a better credit score. So, if you’re planning to start a business soon and apply for a loan to get capital funding, you might want to think of getting a credit card to increase your chance of a successful loan application.
2. You'll Be Fine If You Pay Only the Minimum Balance
Some credit cardholders assume that as long as you pay the minimum amount due every month, you’re safe. While it’s true that paying the minimum amount due on time saves you from paying late payment fees and penalties, your account is still subject to interest charges.
When you pay only the minimum amount due, the entire balance will be recalculated with high interest for your next billing statement. Thus, your principal debt will incur interest each time you don’t pay in full, making your balances grow each month.
One of the easiest ways to achieve a better financial standing is by paying off your credit card bill in full each month. When you pay in full, you don't increase your current debt.
Read more: Why Pay Your Credit Card Bill in Full Every Month
3. Unpaid Credit Card Debt Can Get You in Jail
“Can I go to jail for not paying credit card debt in the Philippines?”
Some Filipinos are afraid to get a credit card because they might go to jail when they can’t pay off their unsettled credit card debt. But the truth is, unpaid debt is considered a civil liability, not criminal. The Bill of Rights (Art. III, Sec. 20 of the 1987 Charter states that “No person shall be imprisoned for debt.” This is true not only for credit card debts but for other personal debts as well.
In addition to this, banks can’t file derogatory information on your NBI record[3] if you have unpaid credit card balances. Thus, you won’t get a “hit” on your NBI clearance for that situation.
Amidst the growing confusion on credit card myths and facts, it might be a relief to know that what causes credit cardholders to go to jail is not the credit card itself. A few years ago, an estimated 10,000 Filipinos were in the courts or prison in the UAE[4], but the reason was not entirely because of credit card use.
Credit cardholders in the UAE are required to issue a check upon submitting their credit card application. These checks serve as a payment guarantee if cardholders default on their credit card payments. If the checks issued are unfunded, the checks will bounce, and the check issuer will need to pay the sum and face jail terms.[5]
So, can you be jailed for credit card debt in the Philippines? Although there are no laws on borrowers serving jail time due to unpaid credit card debts in the Philippines, it is strongly encouraged to settle your credit card balance.
Accumulating debt will hurt your credit score. And with a bad credit score, you’ll have trouble having your loan approved.
Paying off your credit card debt will also give you peace of mind. You can rest easy knowing you don’t owe anyone money.
So, what happens to unpaid credit card debt in the Philippines?
Since you can't go to jail for unpaid credit card debt, your bank will turn over your credit card account to a third-party collection agency. A collection agent will call you to convince you to repay your unsettled debt.
If you do promise to pay your balance, the credit card company can take the matter to court. However, lawsuits can be long and costly, so the credit card company might also enter in a out-of-court settlement with you.
4. It's Difficult to Apply and Get Approved for a Credit Card
To some extent, this is true for some people, especially those with poor credit history. But not all types of credit cards are difficult to apply and get approved for. This is one of the many credit card myths you should stop believing.
For example, even if you don’t have enough financial documents to show to the bank or have poor credit standing, you can easily qualify for a secured credit card.
If you’ll get a credit card for the first time, you have plenty of options for cards designed for starters. There are also credit cards with simple application procedures and minimal requirements.
Credit card applications may be hard. Before blaming it on the stringent screening process, check for some mistakes you might have committed, too.
- Applying for the wrong credit card tier. Credit cards have different tiers and qualification requirements. Basic credit cards have lower minimum required salary, while Gold and Platinum credit cards require a gross annual income of PHP 500,000 or higher. You can check some of the best credit cards for low income to kick off your credit card ownership.
- Submitting incomplete or outdated requirements. You might have submitted documents that did not comply with the bank’s requirements, like an ITR from 2019 when applying for a credit card in 2021. You might have also provided the wrong address and telephone number, preventing the bank from conducting its verification.
- Applying through multiple agents. Multiple credit card applications create an impression that you badly need a credit card and that you’re in a grave financial situation.
5. You Can't Negotiate Credit Card Terms
It's wrong to assume that whatever terms your card comes with are set in stone. Credit card terms are negotiable. You just have to call your bank and ask.
For instance, you can request an annual fee waiver if you've been a good customer (i.e., you always pay your full credit card balance on time). You may even try negotiating a lower interest rate, especially if you're trying to pay down your credit card debt.
Credit card terms are negotiable for cardholders who have a squeaky clean credit card record and have a good relationship with their bank.
Read more: 14 Credit Cards With No Annual Fee in the Philippines
6. You Can't Have More Than One Credit Card
The fear of having multiple credit cards comes from the misconception that it can badly affect one’s credit score. Well, it does have an impact, like when you have many credit card applications at the same time, which can lower your score a bit.
However, the computation of a credit score doesn’t include the number of credit cards owned. It isn’t a big deal. So yes, this is only one of the many credit card myths out there.
It’s actually good to have multiple credit cards for maximizing your rewards and privileges. You can have a separate card for grocery rebates and another for earning air miles.
If you can remember multiple due dates, cut-off dates, statement dates, and other important information that will save you from paying penalties, then get more than one credit card. However, if you’re still struggling to manage your finances, then you can stick to one card for now.
7. Credit Card Fees are Expensive
A late payment can cost you around PHP 500 to PHP 1,500 depending on your credit card. Although interest charges are capped at 2%, that would still be equivalent to PHP 200 if you have a balance of PHP 10,000.
A credit card doesn’t really need to be expensive, especially if you comply with its terms and conditions. In essence, it’s the habit of paying late that makes credit card use a costly venture.
Certain credit cards come with a low or no annual fee or foreign transaction fee. Other fees are avoidable, such as the finance charge and late payment penalty. At the same time, there are many credit cards that offer rewards and cashback. You can save money with these credit cards each time you use them.
8. Credit Cards are Only for the Rich
One of the common credit card myths in the Philippines is that only high income-earners can afford them. Banks always want to earn as much as they can. Because of the booming Philippine economy in recent years and the high purchasing power of Pinoys, more people are now qualified for a credit card.
Some credit cards in the Philippines target low-income earners and young professionals with a limited budget by having a low minimum income requirement and charging low or zero annual fees.
Remember: credit cards are made for those who know how to manage their finances. These are financial tools available to help you take advantage of an available credit line.
9. You Should Cancel Unused Credit Cards
One of the most common credit card myths of Filipinos is canceling unused credit cards. This is because keeping a credit card you don't use will affect your credit score.
Keeping unused credit cards won't hurt your credit score. With an unused credit card, your credit limit remains high, which can expand your purchasing power.
If you think the disadvantages of keeping an unused credit card outweigh the benefits, then maybe it's time to cancel it. Your credit card membership lasts for a year, anyway, so you have enough time to decide if it’s worth keeping. Just remember that a credit card provides a good safety net in times of emergencies.
10. Credit Cards are More Prone to Fraud
Filipinos believe that scammers target credit cards more than debit cards. After all, fraudulent activities using credit cards have increased by 29%[6] since the start of the pandemic in the Philippines.
But scammers don't target just credit card users. There are millions of phishing emails[7] and scam texts being sent to bank account holders every day, too.
The good thing with credit cards is that when an unauthorized transaction is made, you can file a dispute and the bank will investigate. If it’s a fraudulent transaction, the bank will reverse the credit charges. But if your debit card is compromised, all the funds in your card are gone, instantly impacting your cash flow.
You can still file a dispute for what you believe is an unauthorized transaction. However, you should have the patience to wait for a decision which may take an average of 60 days. During this time, call your bank to cancel your current card and request a replacement.
Final Thoughts
Believing in credit card myths can stop you from enjoying their benefits. Owning a credit card has a lot of advantages, especially if you can manage them well. Before applying for one, do your research on how credit cards work. For example, instead of asking people what credit card is the best for you, use comparison websites like Moneymax. You can learn more about the best credit cards in the Philippines and compare them easily and for free!
Sources:
- [1] Credit card usage remains low in the Philippines (Philstar, 2019)
- [2] The importance of financial education to counter long-term effects of COVID-19 pandemic (CNN Philippines, 2021)
- [3] Dealing with a collecting agent crying credit-card fraud (Manila Times, 2015)
- [4] Filipinos in UAE caught in credit card trap (Inquirer, 2011)
- [5] All you need to know about new UAE law on bounced cheques (Gulf News, 2021)
- [6] Credit card fraud cases surge 29% (Business Inquirer, 2021)
- [7] Beware, it’s a scam! (Manila Bulletin, 2021)
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