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People acquire credit for different reasons. Some use credit to take advantage of business opportunities. Others use it to pick themselves up.
There are also people who get credit to deal with emergencies, such as the passing of a family member or natural disasters.
Taking out a loan is useful, but not all loan applications are approved.
It is standard practice for financial institutions to carry out a credit investigation before they lend people money. This is where credit score comes in handy.
What is Credit Score?
Credit score is basically a number that tells creditors how capable a borrower can repay their loan. The higher your credit score, the better chances you have in getting your loan application approved.
Credit companies take into consideration several factors, such as the credit payment history of the borrower, the amount loaned, types of credit used, length of credit history, and new credit.
In other countries, they use a standard for credit scoring, with the scores typically ranging between 350 and 800.
However, in the Philippines, credit reporting is not unified. Credit scoring is handled by the Credit Information Corporation (CIC)1, though.
Also, banks hire private credit report providers to determine an individual’s eligibility for a loan.
Factors used in credit scoring
There are several credit scoring models, but these are the most common factors which can affect credit scores:
This comprises how responsible you are in terms of paying your loans on time. If you miss a payment, your credit score can drop by as much as 90-100 points.
Length of credit history
This refers to how long you have had credit. They will get the average age of all of the credit cards you hold.
Every time you apply for a loan or credit, you will be flagged for opening a credit line, so if you have multiple credit lines, your rating can be affected.
This means the money that you currently owe different lending institutions. This includes credit card debts. The more money you owe, the lesser your chances of getting your application for new credit approved.
Factors not used in credit scoring
The factors below do not affect your credit score. Some of them may come as a surprise to you.
- Noncredit information (savings, checking, or investment accounts, debit and prepaid cards, and other bank accounts that are non-credit)
- Affiliations (religion, race, ethnicity, political affiliation, etc.)
Benefits of a good credit score
Perhaps you are wondering whether it matters if your credit score is good. It does. There are several advantages to having a good credit score.
Getting a credit card or a loan will be easier.
A high credit score can give you easier access to credit because your score tells lenders that you are a reliable and trustworthy borrower.
The credit card or loan applications of people with higher credit scores tend to be approved faster compared to the application of those who have poor credit scores.
You can get higher loan amounts with lower interest rates.
Because of credit reports, lenders can make objective decisions when they process credit card and loan applications.
Creditworthy individuals can qualify for higher credit card limits and loan amounts at lower interest rates.
You can get better deals when you rent a property.
In the Philippines, credit scores are also useful in negotiating for better deals when renting property. If your credit score is high, you can haggle with a prospective lessor for a one-month deposit instead of the usual two months.
You can enjoy lower insurance costs.
A good credit score can get you discounts on insurance rates. However, car or life insurance can cost more if your credit score is poor.
Your chances of getting hired are higher.
There are employers who conduct background checks. Some even hire the services of credit bureaus so they can learn more about the employment history of potential employees.
Employers may look at your credit report or credit score to determine whether you are a responsible employee.
11 Ways to Maintain & Improve your Credit Score in the Philippines
Now that you know the benefits of having a good credit score, here are some things that you can do to have a better credit score:
1. Avoid late payments
Your payment history is a big factor that affects your credit score. Although it depends on how late your payment is, or how much you owe, late payments are bad for your credit score.
If you can, make sure to pay off your account on or before the deadline. If this is impossible, settle it within 30 days after missing the deadline. If your credit card is unpaid for 60 days, you will start to see a negative effect on your scores. Soon, your account may even be labeled as a delinquent.
When you pay late, credit bureaus will be notified, and this will reflect in your credit report for years.
2. Pay off debts
Your level of debt can affect your credit score because the amount you owe impacts your capacity to pay all your debts on time. Keep in mind that creditors will also assess your capacity to pay off various types of debt.
Of course, not all debts will automatically negatively affect your credit score.
But as your balance increases, you will start to see a negative impact on your credit score. This is not only limited to credit cards, but also installment loans.
3. Avoid applying for multiple loans at the same time.
When you apply for credit, a record is created and your information will be shared with certain agencies.
If you apply for multiple loans at once, it will look a bit unusual and there is a good chance that your credit rating will be affected negatively.
It is better if you shop around to find the best rate before you apply for a loan.
4. Get more than one credit card.
The reputation for borrowing that you can build by getting multiple credit cards tells potential lenders that you have the ability to use and pay off more than one card.
This will improve your chances of getting your loan application approved and borrowing higher amounts will be easier for you. Those who have good credit typically pay less interest compared to people with poor credit scores.
However, it can be overwhelming using multiple cards.
Make sure you keep track of how much you have spent and where. Fortunately, most lenders now have an online or mobile interface that can manage your account.
5. Start building good financial habits as early as possible.
If you don’t have a credit card yet, you should apply for one and start using it as soon as you can. The rate will likely be high but it will improve eventually, provided that you clear the balance every month.
While it’s common for young people to struggle to get credit, they can increase their chances of getting their personal loan approved by showing that they are responsible borrowers.
Another good option is a savings account. Even if you haven’t saved much, it can show lenders that you have the capability to invest some of your income.
6. Do not go over your limit.
With contactless payments becoming more and more common and subscription-based services more and more popular, keeping track of your spending can be a challenge.
However, you should never exceed your credit limit. Even if it just happens once, it can already affect your credit rating negatively. What’s more, when you go over your credit limit, you will have to pay a penalty fee in addition to what you already owe.
7. Get multiple types of finance.
A high-value customer can demonstrate their ability to pay off both a personal loan and a credit card comfortably. Lenders want borrowers like this.
Your credit rating will get a boost over a short period of time if you pay off different types of credit successfully.
8. Be mindful of your online activity.
These days, a lot of data is collected about potential borrowers. Every time you search for a credit card, loan or other types of lending, it can have an effect on your credit score.
Instead of searching for different lending options on a regular basis, try to set specific days and times for the activity. The credit agencies might see your search history and think you are having financial troubles because you are searching for loans regularly.
They might give you a higher interest rate or they might not approve your application.
9. Raise your credit limit
When you raise your credit limit, you will also be lowering your credit utilization ratio, which refers to how much of your credit you are using. The lower your utilization ratio is, the better your credit score will be.
The recommendation is to keep your utilization ratio under 30 percent. When you raise your credit limit, you will enjoy a bigger allowance so you won’t go past the 30 percent mark.
10. Do not close credit cards with the remaining balance
It’s possible to close a credit account with an outstanding balance. However, the charges won’t magically disappear and you still have to pay monthly interest on it.
While it may seem like a good idea to close credit cards, this will affect your credit score. This is true especially if you cancel your longest credit card since your credit history will drastically decrease.
11. Settle existing loans/credit debt before applying for a new one
Think twice before you apply for a loan or a new credit card while you still have existing balances to take care of.
When you still haven’t paid off your balance, it can lead to multiple refusals which can reflect on your credit score.
Credit Scoring in the Philippines
Owned and controlled by the government, the Credit Information Corporation (CIC) gathers credit information from different sources, including banks, insurance companies, credit cooperatives, financing firms, utility companies, and other financial institutions offering loans.
The CIC basically collates a potential borrower’s information to help creditors evaluate the individual’s ability to pay.
Currently, only people who have credit records or transactions with financial institutions engaged in credit-related activities can request their credit scores and reports.
A special assessing entity like the Credit Information Bureau, Inc. (CIBI), which is accredited by the CIC, processes an individual’s credit information upon request. Credit scores can range between 300 and 850.
Credit score vs. Credit report vs. Credit History
While your credit score, report, and history are interrelated, they are different from each other.
Your credit report will include all your financial transactions, including your utility subscriptions and loans. The comprehensive report will also contain your credit information like balances and missed payments and personal data like your name, home address, employer, and SSS/GSIS number, and TIN.
Your credit score is computed based on your credit report.
On the other hand, your credit history describes your use of credit and what you are like as a borrower. The record will show how effective you are at paying down debts throughout the years.
Other entities collecting data for Credit Information in the Philippines
These days, aside from the CIC, there are fintech (financial technology) companies in the country that determine credit scores based on data from sources like prepaid top ups, bills payment, remittances, loan amortizations, insurance premiums, and social media.
Here are some of the most popular ones:
Taking pride in being the first profile scoring service in the Philippines, KayaCredit gives the unbanked yet economically active Filipinos access to loans.
It also helps partner lenders find more borrowers who are qualified and responsible. KayaCredit uses artificial intelligence to analyze behavioral and transaction data to predict the financing needs as well as the repayment behavior of a borrower.
It also provides partner lenders with underwriting information (all financial statements submitted to the lender for loan negotiations and for the lender to make decisions about the loan).
GCash now also has a feature called GScore, a trust score or rating that you can get from using the service. It increases when you use GCash to pay bills, buy load, or pay QR.
When your GScore reaches around 600, you can unlock another GCash feature called GCredit. Your GCredit limit will be determined by your GScore.
Your credit limit will increase as your GScore goes higher, and when you pay your GCredit balance on time, your score increases even more.
Finscore’s large information base allows them to provide credit score ratings for more than 35 million Filipinos.
The fintech company can also process credit scores really fast, and provides real-time data without requiring any action from applicants.
Finscore uses telco data like text, call,and data usage, top up, time since activation, locations, top-up credit sharing (pasaload), and other data types that can be extracted from cell phone usage to score consumers and provide credit scores for various applicants, even those who don’t have reports from different credit bureaus.
How to Check your Credit Score in the Philippines
The CIC or its accredited credit bureaus can provide Filipinos with their credit report.
If you want to get your own credit report, you can request one by visiting Creditinfo.gov.ph, the CIC’s website.
Go to the ‘Services’ section on the homepage and choose the option ‘Get a CIC Credit Report.‘