Roughly 4 to 7 million Filipinos own a credit card. Of that number, how many do you think pay off their full balance monthly? Many people assume that credit cards only serve to drive a person in debt, and it can be true when a person is unable to manage their spending properly.
The way you handle your credit card or debts of any sort directly tie into your credit history. A credit report is how financial institutions measure whether or not you can manage timely payments on any amount you borrow. Your credit report is determined by your credit history, which also determines your credit score.
Most other countries have a centralized agency that collects this information. In the Philippines, this information is handled by private contractors like TransUnion, which partnered with BPI, Banco de Oro, MetroBank, HSBC and Citibank in 2011. The Credit Information Corporation aims to change this when it begins operations later in 2015. As a government-owned and -controlled corporation, it will be the central bureau for all credit information.
A centralized credit bureau allows for more transparency, meaning that the ordinary borrower will have access to their credit score information. Private agencies, such as TransUnion, do not distribute this information.
Your credit history – good and bad – can affect whether or not you can finance your dream home or get approval for a credit card. Building a good credit score means that interest rates on any money that you borrow will be lower, and approval on loans you make will be faster. So what is it, really?
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What is a Credit History?
A credit history is a record of previous debts and how you handled them. It determines your credit worthiness and whether or not you can be approved for a credit card or a loan. This shows banks and other financial institutions what kind of debts you have, how much money you owe, and whether or not it was paid on time.
The Credit Report
This is a document that details your credit history. If you took out an auto loan and paid it off successfully, it’ll be on here. If you have credit cards or other loans, they’ll show up here as well.
The Credit Rating
The CIC is set to be the main governing body in the country that determines this. It’s a summary of your reputation as a borrower, which will help lenders decide whether to approve your application or not.
What Affects Your Credit Score?
There are positives and negatives when it comes to your performance as a borrower, and here’s a look at how they factor into your credit score.
Positive Credit Rating Information
Your positive credit performance will include, but isn’t limited, to:
- Timely repayment on money borrowed
- Delinquency (or a lack thereof)
- Loans fully paid
- The lack of a revolving balance on your credit card
Negative Credit Rating Information
Poor credit performance will impact your credit score negatively. It includes, but isn’t limited to:
- Defaults on loans
- Cancelled credit cards
- Any pending cases related to credit or your financial capacity
How Does It Affect You?
Your credit history is one influencing factor when they make decisions on your application. The other is your income. Lenders will look for your ability to regularly pay off a loan or credit card. So how does your credit history and score affect these?
Getting a Loan
With a better credit history, the loan you secure will have a lower annual percentage rate. If your credit history is not so good, your loans may have higher interest rates — if you get approved at all.
Getting a Credit Card
Banks will approve your credit card application much more readily when you have a good credit history, combined with a healthy income.
Maintaining the good habits you’ve built when it comes to managing debt will play a large role in establishing yourself as someone with good credit standing. Get a head start on building a good credit history by making sure you’re on time with all your payments.
-  Transunion
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