Getting to know your credit score

Though more and more Filipinos are gaining access to banks, credit, investment instruments and other services, it is undeniable that many Filipinos still remain unbanked. The world of Credit might be an intimidating issue for most Filipinos, but knowing your credit scores and understanding the details on your credit history will become impactful in your financial wellbeing.

Filipinos are hesitant to borrow money due to “difficulty” in borrowing from financial firms. Specifically the documentary requirements and a “collateral” as a major hurdle in applying for a loan.

What is a credit score?

A credit score is a numerical expression based on a level analysis of a person's credit files, to represent the creditworthiness of an individual. A credit score is primarily based on a credit report, information typically sourced from credit bureaus.

What is a credit report?

A credit report contains your credit history as reported to the credit reporting agency by lenders who have extended credit to you. Your credit report lists what types of credit you use, the length of time your accounts have been open, and whether you've paid your bills on time. It gives lenders a broader view of your credit history than do other data sources, such as a bank's own customer data.

Why should it matter?

Credit scoring has been in use by lenders all over the world for more than three decades. With a credit score Filipinos would be able to get financing just by having a good debt payment track record regardless of collateral. With this standard, Filipinos will be spared from getting services from loan sharks.

Credit Score Range

The range of a credit score would instantaneously give an indication what type of borrower you are. Citing the world-renowned FICO Score range, credit scores can range from 350 as the lowest to 850 as the highest. The risk bracket of the whole credit score range also varies depending on the risk appetite of the lender.

High Risk Borrower — When your credit score is on the lower bracket. In order to protect their business interest, lenders may decide to provide a higher interest rate, shorter payment terms or even deny your loan application.

Medium Risk Borrower — Middle range credit score. Lenders may decide to give you the minimum interest rate or regular duration on your payment terms.

Low Risk Borrower — If your credit score is evident on the higher array, then the lenders may consider you as low risk borrower. Low risk borrowers enjoy lower interest rates and longer payment terms as the lenders are assured that they are dealing with a good and responsible borrower.

How can you have a good credit history?

Start building a good credit history early - Having a credit card and making regular payments on it is one of the easiest ways to build your credit history and reassure banks that you’re a good credit risk.

Consistent Payments - Paying on time is one of the biggest contributors to your credit score. Simply making payments on time will have a good impact on your history. If you’ve missed payments, get back on track ASAP because sometimes, missing payments is unavoidable.

There’s no one way to go about it but you’ll need to be consistent and to keep up your good credit behavior over many years.

To know more about credit scoring, visit www.cibi.com.ph.

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Iggy Go, RFP®, REB, is a Public Speaker, Content Producer and  Author of the book “A Lazy Investor’s Way”.