Do you know what your credit score is? You may not realize it, but this number can make or break your finances.
Let's say you're applying for a loan to start a business. You're confident that you'd be approved because you met all the qualifications and submitted all the requirements. Your income documents also prove that you can repay the loan. Much to your surprise, the bank denied your application. What could be wrong, you wonder.
Banks consider a variety of factors to decide whether to lend money to someone or not. Apart from the financial information submitted via a loan or credit card application, banks also use a borrower's credit report and credit score to gauge his or her ability to pay back a debt.
"Banks lend other people's money to borrowers. Therefore, they're accountable. People should understand that banks cannot just lend to anyone without any basis," said Credit Information Corporation Board Member Suzanne Felix in an ANC interview.
Keeping track of your credit score in the Philippines is crucial to managing your personal finances. It's important to understand what it is, how it works, and why you need to check yours.
What is a Credit Score and How is It Computed?
Your credit score is a three-digit number that represents your creditworthiness or ability to pay off a loan based on the information in your credit report.
What is a Good Credit Score?
A credit score in the Philippines ranges from 300 to 850, with 850 being the highest rating. The higher your credit score, the better. Banks, insurance companies, and other financial institutions use the credit score, among other things, to assess a borrower's credit risk.
What Factors Affect Your Credit Score?
Credit bureaus calculate credit scores based on five criteria. Take note of these factors when improving your credit score:
- Credit payment history: How regular you pay your debts, how much you repay, and whether you've paid on time or not
- The amount owed or credit utilization ratio: How much of your credit limit you spend. If you're maxing out your credit card, you're likely to miss your loan repayments in the future and get a lower credit score.
- Length of credit history: The average age of your credit card and loan accounts, and the length of time since those were used
- Types of credit used: Whether you've availed of a variety of credit types such as auto loans, mortgages, and credit cards. This information gives lenders an idea if you can manage different credit types responsibly.
- New credit: How often you've opened new accounts. Applying for multiple credit cards or loans at once can hurt your credit score.
Read more: Bad Money Habits That Ruin Your Credit Score
What Factors are Excluded from Your Credit Score?
- Affiliations (religion, race, ethnicity, political affiliation, etc.)
- Non-credit banking information (savings accounts, checking accounts, investment accounts, debit cards, prepaid cards, and other non-credit bank accounts)
What's the Difference Between a Credit Score, Credit Report, and Credit History?
Your credit score, credit report, and credit history are interrelated yet different from each other.
A credit report is a comprehensive summary of all financial transactions, including loans and utility subscriptions. It contains credit information such as balances and missed payments, as well as personal data such as name, TIN and SSS/GSIS number, home address, and employer. It's used as the basis for computing a person's credit score in the Philippines.
Meanwhile, a credit history is a record of one's ability to repay debts over the years. It describes how you use credit and how responsible you are as a borrower.
Credit Reporting and Scoring System in the Philippines: How Does It Work?
Created through Republic Act 9510 or the Credit Information System Act, the Credit Information Corporation (CIC) is the only centralized registry of credit data in the Philippines. The CIC is authorized to collect, consolidate, and share credit information with all financial institutions in the country.
Banks, cooperatives, insurance firms, and telecom companies submit their clients' credit history to the CIC, which then collates the information into detailed credit reports. Authorized lenders can access credit reports from the CIC.
The CIC has four accredited credit bureaus or special accessing entities that compute credit scores in the Philippines:
- CIBI Information, Inc.
- Compuscan Philippines
- CRIF Philippines
- TransUnion Philippines
Why is a Good Credit Score Important?
Having a good credit score is important, so much so that it's considered a big deal when it comes to romantic relationships. Various studies found that higher credit scores increase the likelihood of finding a lifetime partner, with financial responsibility topping the list of qualities of an ideal mate.
There's even an online dating site (CreditScoreDating.com) that matches people based on financial compatibility. The dating service carries the motto "Good Credit is Sexy."
The same dynamics can also be said about lenders and borrowers. To gain the bank's trust, you have to prove your commitment and responsibility to pay back what you owe on time. Your credit report and credit score in the Philippines will be your proof.
Why You Should Improve Your Credit Score in the Philippines
1. Easy to get a loan or credit card
With a high credit score, you can enjoy easy credit access because lenders will see you as a reliable, trustworthy borrower. Your loan or credit card applications will get approved faster than those with poor credit scores.
2. Higher loan amounts and lower interest rates
Credit reports enable lenders to make fair and objective decisions when processing loan and credit card applications. If you're found to be creditworthy based on your credit report, you'll qualify for higher loan amounts and credit card limits with lower interest rates.
- Getting to Know the Credit Information Corporation in the Philippines
- What is a Credit Report and Why Do I Need it?
3. Lower insurance costs
Your credit score may also affect how much premium you're going to pay for your car insurance or life insurance. You can get a discount on insurance rates with a good credit score, while a bad credit score can cost you higher premiums.
4. Better deals on property leases
The importance of a credit score in the Philippines goes beyond credit cards and loans. It also matters when negotiating for better deals, such as when you're renting a property. If you know you have a high credit score, you can use that to haggle with a prospective landlord for just a one-month advance payment rather than the usual two month-deposit.
5. Higher chances of getting hired
Your potential employers may conduct background checks and even avail of the employment history check service from credit bureaus in the Philippines. They may also look specifically at your credit score or credit report to determine how responsible you are as a potential employee.
Read more: What Your Credit Report is Saying About You
How to Check Your Credit Score in the Philippines
Filipinos can get their credit report for a minimal fee from either the CIC or one of its accredited credit bureaus. You can file a request through the CIC's website at creditinfo.gov.ph. Just click 'Services' on the homepage and select 'Get a CIC Credit Report'.
To access your credit report, you'll need to present a valid ID (passport, driver's license, etc.) and provide your personal information (full name, birth date, and contact details).
Back to the main article: Credit Report vs Credit Score: Understanding the Difference
Monitoring your credit report and credit score lets you know if you need to improve them. It also allows you to correct any error, raising your chance of getting approved for a housing loan, car loan, personal loan, or credit card. These reasons make checking your credit report and credit score worth your time.
-  Why credit score is important to entrepreneurs (ABS-CBN News, 2015)
-  Credit Risk (Labarre, Investopedia, 2020)
-  How to Check and Monitor Your Credit (Bernardi, Time, 2020)
-  Credit Information Corporation (CIC) Official Website
-  Your Credit Score Could Make or Break Your Love Life (Wooley, Bloomberg, 2017)