Filipinos are credit-hungry, but are they credit-ready?

LOCAL interest in credit continues to grow, and TransUnion’s Credit Perception Index Study published earlier this year indicated an increasing desire among Filipinos to use credit-based products in the future. The study highlighted that installment payments and personal loans were the two credit products that respondents were most likely to use in the next year.

HIGH INTEREST, LOW FOLLOW THROUGH
A growing appetite for credit products is an encouraging sign for those of us already in the formal financial sector. After all, credit can open opportunities for people to enhance their quality of life by enabling access to money for their immediate and long-term goals. While I believe that Filipinos are credit-ready, there is more we can do to convert interested consumers into active, responsible credit users.

Additional findings from the study showed that while 60% of respondents intend to use a greater range of financial products and services in the next year, only 21% are considering borrowing or using credit products in that same period. These figures hint at consumers’ caution about using credit products.

UNPACKING WHY FILIPINOS STAY CREDIT-HUNGRY
One way to understand why Filipinos are reluctant to use credit is to analyze how they see themselves and their finances. Despite 79% of the study respondents claiming to have a strong understanding of their finances and 69% claiming to be knowledgeable on the general definition of credit, 51% said that they have limited money at the end of the month.

Additional findings showed that only one third (33%) of Filipinos believe that users of credit-based financial products save more money — a stark contrast to those who believe that users of credit-based financial products overspend (57%), and those who see users of such products as financial risk-takers (65%).

With 90% of people expressing a desire to save more in the next year, these findings imply a gap in Filipinos’ knowledge about credit and how it can support their plans for the future. When used wisely and responsibly, credit can help people save money. Certain credit products offer perks and benefits such as redeemable rewards points and cashbacks, for example. Regularly paying off credit balances also helps build a good credit score, which helps secure lower rates on future credit products such as loans for houses or cars.

This gap in knowledge is also compounded by a long-standing stigma in the country that paints the act of seeking credit products as a gateway to bad debt and financial irresponsibility.

READYING FILIPINOS TO EMBRACE THE LIFE-CHANGING POWER OF CREDIT
I believe we can bridge the gap to help more Filipinos see the value in using credit wisely and diversifying the credit products they use. One way we can do this is to keep working with the formal financial sector to educate consumers about how the responsible use of credit can impact their lives beyond just giving them the ability to borrow money.

When told how having a credit score can positively influence loan approvals, job applications, and help achieve their financial goals, 90% of study respondents expressed how that information may influence their likelihood to use credit-based products in the future.

Across the formal financial sector, we must focus our efforts to connect the benefits of credit with important life events such as buying a house or securing the funds needed to start a business. Alongside the continued promotion of healthy financial habits to improve and maintain a good credit score, we can help more Filipinos to dismiss the negative stigma surrounding credit.

Credit can help Filipinos save more money, be better prepared in the event of an emergency, and gain access to more opportunities that make their lives better. More Filipinos stand to benefit from being empowered to use credit responsibly, and, on a larger scale, responsible credit use can also serve as a wider catalyst for economic growth.

For more information and insights, please view the full report of the TransUnion Credit Perception Index study.

Pia Arellano is the president and CEO of TransUnion Philippines and has over 28 years of industry experience across banking, payment solutions, telecommunications, and remittance services. She has been instrumental in establishing TransUnion as a leading private consumer credit reference agency and an information and insights partner of banks, fintech companies, and other institutions in the Philippine financial system. You can e-mail questions to tuphcomms@transunion.com.