What really is credit card stigma, and why many Filipinos should start breaking it?
Time to get more serious, folks.
As Cambridge Dictionary simply defines it, a stigma is “a strong feeling of disapproval that most people in a society have about something, especially when this is unfair.”
Mental health, for example, is still highly stigmatized in the Philippines, a nation where resilience is normally and culturally used as a defense mechanism, thus leading many to keep their true mental health conditions on their own to avoid derogatory labels such as ‘baliw’ (crazy) and psycho.
In terms of money and other finance-related concepts, debt or ‘utang’ has perhaps the most stigmas surrounding it than any other.
It is widely perceived in Filipino society as synonymous with financial hardships, mismanagement, and vulnerability. So, getting into debts is always a bad idea.
Credit cards, being on the same page, also have such a bad reputation, a stigma, to many Filipinos.
We commonly associate them with debt traps, extravagant shopping sprees, exclusivity for the rich, hidden charges, and even imprisonment for not being able to settle balances — these which we’ll try to debunk in yet another article about credit cards.
Before that, let’s first look into the recent figures and statistics for us to better understand the purpose of this article.
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- Bangko Sentral in Pilipinas (BSP) created an initiative, the Digital Payments Transformation Roadmap 2020-2023 which aimed to strengthen and convert at least 50 percent of payments into digital and onboard 70 percent of adults into the financial system. It envisions an efficient, inclusive, safe, and secure digital payments ecosystem that supports the diverse needs and capabilities of individuals and firms. It is furthermore anchored on three pillars — digital payment streams, digital finance infrastructure, and digital governance standards [BSP].
- In 2021, 8.09 percent of Filipinos aged 15 and above had a credit card, significantly lower than the global average (based on 122 countries) of 22.26 percent [World Bank Global Financial Inclusion Survey].
- In a GlobalData report, card payments are expected to increase to PHP2.9 trillion by 2025 or an annual growth rate of 9.1 peecent [PhilStar].
- Per Visa’s Consumer Payment Attitudes Study, cashless payments are on the rise in the Philippines with 60% of Filipinos carrying less cash in their wallets and 84% having tried going cashless in 2021 [Southeast Asia Development Solutions].
- Cashless payment usage in the country is increasing across a variety of payment options, where Filipinos’ have a preference to use mobile wallets (64%), card payments online (52%), card payments at physical merchants (44%), and QR payments (31%) [Southeast Asia Development Solutions].
- Relatives and friends (30.8 percent) were the top loan provider in Q4 2022. This was followed by lending companies (19.8 percent), individual money lenders (13.7 percent), banks (8.8 percent), and cooperatives (8.3 percent) [4Q 2022 BSP Consumer Expectations Survey Report].
These figures only show that we are heading towards a cashless society. Since the advent of the internet, digital payments such as those made with digital wallets (e.g., GCash and Maya), debit cards, and credit cards have been all but inevitable, unstoppable, while the use of cash has been in decline.
Credit card penetration in the Philippines remains low though. Why is that so?
Now, here are six (6) common myths, beliefs, or whatever you may call them (anyway, we have our own versions of truths) that surround the credit card stigma among Filipinos, mostly the adults:
[1] Credit cards are nothing but debt traps. Anything debt-related is bad, and that is just what many Filipinos believe. Debts rather come in two big categories — good debts and bad debts.
Good debts are money owed for something that can further build wealth or give income such as business loans, mortgages, educational loans, and many others, whereas bad debts entail borrowing to purchase depreciating assets or those that lose value over time.
Credit cards are not necessarily a bad thing, or a bad debt or a debt trap. In fact, there are obvious advantages that just come with these powerful financial tools such as their convenience, the rewards programs, and essentially, the potential access to good debts.
Many Filipinos are then left at this big disadvantage for believing that credit cards lead no other way but to these bad debts.
But in fact, according to the 2021 BSP Financial Inclusion Survey, almost half of Filipino adults have outstanding loans with family, friends, and other informal lenders. And these are possibly bad debts if further examined.
[2] Credit card use leads nowhere but to extravagant shopping sprees. The convenience brought by credit cards also results in skepticism. We are rather more inclined to complacency and the old yet proven ways than moving forward and embracing something more innovative, something we generally call ‘change.’
As it goes, many Filipinos shy away from getting credit cards because they believe that these but lead to extravagant shopping sprees or splurging as if it’s the credit cards that do have the control on their own or as if there’s something evil in them that hypnotizes and whispers a powerful spell to do so.
Well, many seem to have fallen to that spell, and just after regaining consciousness from accumulating credit card debts, try to find means to redeem their creditworthiness and rebuild their credit scores while being more responsible than before.
It takes just a simple guiding principle which I am a strong advocate of — responsible use of credit cards.
[3] Credit cards are exclusively for the rich. It’s the influence of television and media — the rich shop and dine proudly with their credit cards, while the poor anxiously count the cash and coins at the checkout counter — that has shaped our mindset about credit cards.
In setting the minimum gross income required, banks and credit card issuers should not always be taken as anti-poor, rather cautious in ensuring that borrowers have the financial capacity to manage and pay off debts based on their income.
Normally, a year-long probationary period gives them the assurance about the creditworthiness of the borrowers, hence a possibly credit limit increase after.
While getting approved for regular credit cards may still be a struggle on the part of the borrowers for a number of reasons, banks offer alternatives such as secured credit cards (SCC) which work just the same as the regular ones and as expected, help build credit scores. And this makes building credit more inclusive.
[4] Credit cards come with lots of hidden charges. It’s part of the common advice from those who do not seem to understand how credit cards really work.
Reading fine prints is important these days, and this is just what most people neglect to do while enjoying instant yet partial information.
Most credit cards come with flat fees such as for annual memberships, late payments, overlimits, balance transfers, and installment conversions — most which can be avoided with on-time payments and responsible credit account management.
Finance charges, on the other hand, are the interests charged for not paying off the monthly statement outstanding balance. If people happen to know these by being financially literate and by having the required level of comprehension, then they’re not hidden after all.
Just with other financial institutions, these only translate to revenue sources for the credit card issuers to operate their business and offer better services. As it is clear to all, nothing is free these days.
[5] Credit card payment delinquencies will end me up in jail. Maybe just advance thinkers, many Filipinos overthink and exaggerate worst-case scenarios, like going straight to jail. Technically, unpaid credit card debts are classified as a civil liability and not a criminal one.
While the constitution says that ‘no person shall be imprisoned for debt,’ there are some cases of abandonment or surreptitious leaving without informing the credit card issuers where the cardholder can supposedly be reached about the past 90-day balance overdue that qualify for a fraud. You might want to read the full article here.
A slap of sad reality though, Filipinos have the reputation of being irresponsible in terms of making and paying off debts. Many worry about their payment delinquencies with financial institutions and formal lenders, but never with their friends and relatives. That’s just another thing.
[6] Credit cards are extremely risky to use. People are just more concerned about the risks than the security features. We tend to dig more about fraud and scams and just settle down thinking about the dangers than proactively strengthening our own walls of protection.
It’s given that credit cards come with such a degree of risks just as many financial tools, even the cash that we secretly keep under our mattress.
In some ways, these thin pieces of plastic are even more secure — they come with security microchips, they’re not linked to your savings or checking accounts, and they have their own credit limits.
In conclusion…
Let’s then accept the fact that — credit cards are not for everyone, especially for the ones who really do not have the control over the urges to spend and spend — but you will not know whether you’re counting in or out without trying to get one.
You can anytime cancel it though, and that’s just another fact.
Getting and using a credit card will not get you trapped in debts, but your inability to control your spending habits will. Many have been using their credit cards for years already, without issues and while successfully building their credit scores.
Credit card issuers do understand our financial behaviors more than we think. Yes, there is a psychology behind all special offers, discounts, and incentives, and they may be so effective at encouraging us to spend more, most of the time even going overboard.
Financial literacy is an instant answer to this.
Notwithstanding these, to believe that credit cards are entirely bad is a faulty generalization, thus the stigma. And we may not know what we are really missing out, or that we may be at a disadvantage for not getting one.
To read more about credit cards, check these resources available on this blog:
Your Ultimate Guide to Getting Your First Credit Card. It provides an easy-to-follow guide on how to get your first credit card amidst the stringent requirements and application processes imposed by banks and credit card issuers in the Philippines, i.e., from checking your credit history and credit score to applying for a secured credit card (SCC) and looking for reliable credit card agents.
12 Reasons Your Credit Card Application Got Declined. It lists and explains the common reasons for declined credit card applications such as having a low credit score and a bad credit history, having a thin file or zero credit record, hard inquiries caused by multiple applications in a short span of time, and simply missing card issuers’ verification calls.
How to Check Your Credit Score in the Philippines (TransUnion). It provides a step-by-step guide on how to request a credit report from TransUnion Philippines, a credit bureau that collects information about individuals’ credit ratings and makes them available to banks and credit card issuers, to know your credit score, and furthermore, to analyze credit history items that may be causing the declined credit card applications.
RCBC Instacard: Application Requirements and Process (Actual Experience). If you have finally decided to test the waters with a secured credit card (SCC), then this is a helpful article as it provides the list of common requirements and the application process, and at the same time, shares an actual experience in applying for an RCBC Instacard.
19 Tips for First-Time Credit Card Users (in the Philippines). It offers a semi-comprehensive list of helpful tips for first-time credit card users who may have just got approved yet without basic knowledge about important credit card terms and concepts and about how these credit cards really work.
6 Common Credit Card Scams in the Philippines (Facebook Stories). It reshares Facebook stories about the common, and perhaps the most recent, credit card fraud and scams that may pose risks to your credit card use. It also provides basic credit card safety measures such as the nondisclosure of CVV/CVC, PIN, and transactions’ OTPs (one-time passwords) and the use of credit cards in secure payment channels, among others.
Credit Card Rewards: What Are They and How Can You Maximize Them? It discusses the common and less common types of credit card rewards, some examples of rewards credit cards, and some ways to maximize earning these rewards such as aligning rewards cards with your spending needs and habits and using specific cards for specific purposes.
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