Building Credit in Colombia. Is The Juice Worth The Squeeze? - Medellin Advisors

Building Credit in Colombia. Is The Juice Worth The Squeeze?

Securing and building credit in Colombia and Medellin.

Navigating financial landscapes in a new country can be daunting, and Colombia is no exception. Building credit is a cornerstone of financial stability in many countries, but takes on unique challenges in Colombia. While a good credit score in places like the UK or the US can open the door to competitive loan rates and financial flexibility, the rules of the game change somewhat in Colombia, particularly for expatriates and foreigners.

The importance of a solid credit history cannot be overstated—it paves the way for securing loans, credit cards, and can even influence job prospects as employers assess financial responsibility. Tyler Gregory aptly puts it:If you don’t take good care of your credit, then your credit won’t take good care of you.” But what does taking care of your credit look like in Colombia, where high interest rates and stringent loan approval processes paint a different picture?

For those new to Colombia or considering a move to cities like Medellin, understanding the local credit system is crucial. Although many expats resort to buying properties outright due to steep interest rates, establishing a credit history remains essential for everyday necessities such as mobile phone contracts, internet, and TV services.

building credit in Medellin & Colombia

Monitoring and Building Your Credit with DataCrédito

In Colombia, DataCrédito serves as the national credit reporting agency. Similar to Equifax or TransUnion in the US, it offers Colombian residents—including foreigners with a cédula (ID card)—the ability to access their credit report and score. Regulations allow you to access this information for free once a year, ensuring that you stay informed about your financial standing.

Datacredito is used to access your credit score in Medellin & Colombia.

How to Register with DataCrédito

The registration process is straightforward but requires that you have your cédula extranjera. You can register online or by visiting the DataCrédito office in Bogota.

Online

Visit the official DataCrédito website. Look for the section specifically for individuals, labelled as “Personas.” You’ll eventually be directed to a page inviting you to “Regístrate GRATIS y conoce tus reportes en DataCrédito”. Click here to be directed to that page.

You will then need to create an account to access your credit information. To realize this process, you will need to input your personal details, including your cédula number.

Once you’ve made an account, you’ll be able to log in and view your credit report/score. In accordance with regulations, you’ll be granted free access to this report, once per year. Additional access will require that you select one of 3 different subscription plans. The most basic of which costs $19,400 COP per month (or around $5 USD).

Building credit in Medellin, Colombia.
With a foreign ID (cedula extranjera), you'll be able to access your credit score for free, once each year.

Visit an office

There are no longer any DataCrédito offices available in Medellín. If you are in Bogotá, then you can visit the office located in “Avenida Américas #62 – 84, piso 2, Local 71-72”. The operating hours are Monday to Friday (7:30 am – 4:30 pm).

Centroexperiencia
DataCrédito opened up its head office in Bogota in 2021.

How to Build a Credit History in Colombia

So, how does one start building a credit history in Colombia? The journey begins with obtaining a cédula extranjera and moves onto practical steps like securing a postpaid mobile phone plan or signing up for utility services—all registered under your cédula. Timely payments on these services not only keep your daily life running smoothly but also help establish your financial reliability in Colombia.

Unfortunately, your credit history back home will not be carried over into Colombia. That means your years of timely payments will not be recognized – you’ll be starting from scratch.

Como saber si estoy reportado datacredito e b a

Here are some ways that you can begin to build  your credit in Colombia:

1. Open a “postpago” cell phone plan and ensure timely payments.

There are multiple network providers such as Claro, Tigo or Movistar. You’ll need to make sure the phone is registered to your cedula number.

2. Get an internet plan set up in your name and pay monthly. 

For internet plans, you’ll find the same three suppliers: Claro, Tigo & Movistar. These companies dominate the broadband, television & telephone sectors and offer combo packages for all three of these services. Signing up for a combo package like this will likely result in a discounted price. 

You can sign up by going to one of the (Claro) stores in Los Molinos Mall or Premium Plaza. You will need your cedula before having a quick credit check performed under your name. 

3. Opening up a credit card with a bank.

Bancolombia stands as the predominant banking institution in Colombia, frequently interacting with foreigners. Despite its prominence, be prepared for less-than-ideal service and potentially tedious exchanges to gather necessary information.

Obtaining a credit card as a foreigner in Colombia can be challenging unless you are employed by a Colombian company and earn a substantial income (at least $3000 monthly). In this scenario, you’ll be required to demonstrate consistent income over a period of at least three months.

Once you successfully obtain a credit card, it’s advisable to start with modest spending limits and make sure to manage your payments diligently. Be aware that credit cards in Colombia typically carry a high annual percentage rate (APR), which can exceed 34%! For this reason, you’ll want to prioritize punctual payments in order to manage these (disturbingly) high interest costs effectively. More on interest rates later.

Esensial

4. Getting store credit and making timely payments.

Various stores and retail chains throughout Colombia offer credit options to help consumers manage their purchases. For expatriates and foreigners, these options can serve as a valuable tool to begin developing a local credit history. One major benefit of store credit is its accessibility; it is generally much easier to obtain than a bank credit card, especially for those who are not yet fully established in the country. Effectively managing store credit can serve as a stepping stone, potentially facilitating the approval for a bank credit card in the future.

Retailers that offer store credit include:

  • Éxito – One of the largest retail chains in Colombia. They offer the “Tarjeta Éxito”, which allows customers to buy now and pay later, often with promotions such as no interest on certain products for a specific period.
  • Jumbo – A supermarket and hypermarket chain in Colombia that offers the “Tarjeta Cencosud,” which can be used in Jumbo and other Cencosud stores like Metro. This card often comes with promotional offers and flexible payment terms.
  • Alkosto/Ktronix –These are popular retail chains in Colombia, known for their broad variety of electronics, appliances, and furniture. They offer their own store credit card, known as “Tarjeta Alkosto,” which can be used to purchase goods on credit with the possibility of instalment payments.
Tarjetaexito
Éxito are one of many stores that provide in-store credit.

Although access to store credit for these shops is generally easier than for bank credit, the requirements will vary from retailer-to-retailer. You may need to provide proof of income and sometimes provide a deposit. Again, as you may know by now, a cedula is imperative. 

Furthermore, and this is important: the credit terms, interest rates and repayment periods can vary significantly, so you should read all the terms & conditions diligently. 

Again, it’s crucial to maintain tight control over your credit due to the exceedingly high APR that seems to be run unabated in Colombia. 

Building credit in colombia is the juice worth the squeeze
Benchmark rate of interest vs inflation rate

Beware of the PREDATORY interest rates in Colombia!

We’ve already touched upon this briefly but we feel it’s important to highlight the extraordinary nature of interest rates in Colombia. As of this writing, the country is actively lowering its key benchmark interest rate, which currently stands at 12.25%, with plans to accelerate the rate of these cuts.

Despite these reductions, consumer interest rates remain significantly higher than the central bank’s key policy rate. Why is this the case?

Several factors contribute to this disparity. These include a risk premium that lenders apply due to uncertainties, higher operational costs associated with lending, a lack of sufficient market competition, and, perhaps most significantly, predatory lending practices! These elements combine to sustain the elevated interest rates that consumers face, impacting affordability and access to credit.

For instance, the APR for credit cards can exceed 30%. A team member of ours was once offered a loan by Bancolombia at an exorbitant rate close to this figure.

For this reason, credit (provided in Colombia) is not typically utilized by foreigners when it comes to making big purchases in Colombia. This includes real estate, which is typically paid for outright.  

The challenge here is that even though real estate in Medellin is relatively affordable compared to what you might pay back home, prospective buyers will need to be ready to depart with a hefty chunk of cash upfront.

A fascinating, yet sad aspect you’ll encounter when shopping in Colombia is the common question at checkout: “How many instalments (quotas) would you like to use for your payment?” Like most, you might prefer to pay for your purchase in full, right away. Especially for what you may perceive to be smaller purchases, such as shoes.

However, the instalment option, or “quotas,” is designed to help consumers manage the cost of larger purchases by spreading payments over time. While this can make items more immediately affordable, the catch lies in the interest accrued. Ultimately, this means that consumers often end up paying significantly more for their goods when they choose to finance them.

Bancolombia in Medellin

To help paint a better picture of the current financial climate, we spoke with a local contact who serves as a mortgage broker. Here is a transcript of what was said:

“Mortgage interest rates significantly increased post-pandemic as banks aimed to recover their portfolios. Before the pandemic, the annual effective rate (E.A) for mortgages ranged between 11% and 12%. This year, however, rates escalated to between 16% and 22%. Now, the situation is beginning to normalize with initiatives like portfolio purchases. Rates are being promoted at 11% E.A. once more. According to the Bank of the Republic, the reduction in rates is an effort to stabilize the market once again. Although the mortgage market has slightly declined, it has not completely stalled. Housing continues to be an essential humanitarian need. Naturally, we all aspire to work towards owning our own homes. In contrast, rates for unsecured investments and credit cards remain high, typically exceeding 25%.”

Conclusion

Navigating Colombia’s financial landscape can be quite challenging for expats and foreigners.

The good news is that registering with Colombia’s credit reporting system is straightforward, quick, and inexpensive.

Establishing credit in Colombia is essential for accessing services like internet, mobile phone networks, and television channels. However, for most foreigners, securing credit for significant purchases, such as housing or a vehicle, is unlikely due to high barriers to entry.

Additionally, excessive interest rates often deter the use of credit. Typically, as a foreigner, you might find yourself purchasing property outright or using credit options available in your home country.

As a foreigner, there are several ways to build your credit rating in Colombia, which may eventually open up opportunities for in-store credit or access to credit cards. However, we advise you to proceed with caution.

For inquiries or further information, feel free to reach out to the Medellín Advisors team.

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