HB 3819 will improve credit discipline

Last Monday, October 1, 2007, I was invited by the Rotary Club of Cebu Fuente (RCCF) to give a talk on the development of credit bureau in the Philippines. My talk focused more on an impending bill called Credit Information System Act or House Bill (HB) 3819. This bill if approve will “establish a comprehensive credit information system for the collection and dissemination of information relevant to, or arising from, credit and credit-related activities of all entities in the financial system”.

Personally, I believe that this bill will be a big boost in improving one’s credit discipline. In my 17 years of being connected with the leading credit information in the Philippines, I find it really disheartening that a lot of consumers don’t practice and/or don’t even know credit discipline. To date, I know a lot of friends, associates and even former office mates who fell in the so-called “debt-trap” and till now paying for it.

Let me define the two (2) terms: credit and discipline. In simple words, credit is defined simply as (1) trust; or (2) promise to “buy now and pay later” under designated “terms” for goods or services. The exact meaning depends from what side are you, the creditor or the debtor. Discipline on the other hand is defined as strict and regular (mental or moral) training. So in short, credit discipline can be defined as “strict and regular control on promise/s to pay, within designated/ agreed terms.”

Credit discipline is important because it affects positively or negatively to a person’s credit history and credit health or more commonly known as Credit Risk Score. Credit Risk Score is a rating system used by lenders, credit issuers, banks, financing and financial institutions to let them know our credit risk level and to help them make sound credit decisions.

This system answers the most basic question: If I give this person a loan or credit, how likely is it that we will get paid back ON TIME?

But attaining credit discipline is easier said than done, what with so many liberal credit card issuers and/or financing/ lending companies that are giving “pre-approved”, “easy-loan” and sometimes so aggressive that they literally “entice us to make that loan” or “make that purchase! ” The “ease of getting credit or loan makes people feel that they have power and control. Consumers are made to feel guilty for not using credit or for not having a credit card”.

 This is like the “sale madness” we have practically all-year round. Although this is good for the economy because of the increase in consumer spending, it will have a whiplash if there will be also increase in delinquency and past dues. No wonder everyday, our interest rates are high and our courts are full with BP 22 (bouncing checks), sum of money and collection cases.

Overall, If HB 3819 will be passed by this congress and upon its full implementation, my guess is that this will really revolutionize the way we avail credit and will definitely make us conscious of our spending/paying habit.

(Ed Limtingco can be reached at [email protected] or at 0917-7220521)