It’s time to keep track of our credit score

Four out of five Filipinos want a simple and comfortable life. By comfortable, we mean owning at least one car and a mid-sized home, having enough money for day-to-day needs, being able to relax with family and friends and taking occasional out-of-town trips. For parents, it includes being able to send their children to college. One way this can be achieved is to extend one’s finances by getting a loan from a financial institution.

Of course, before you apply for a loan, you need to make the necessary preparations to complete your application prior to submitting this to lenders. But did you know that apart from proof of income and employment history, lenders look at your bureau credit score, too?

You’ve probably heard that countries like the United States and Canada refer to their citizen’s credit scores when they apply for a mortgage, buy a phone, or even rent an apartment. How about the Philippines? To understand this better, let’s talk about credit scores—where to get them, why they matter and why it’s important for us to keep track of them.

Credit scores: what are they and how do you build a good one?

What are credit scores in the first place? A bureau credit score is a number, generated through a model or algorithm, considering a borrower’s credit and payment history, profile, credit utilization and other relevant attributes based on data contributed by lending institutions to a credit bureau. It is one of the credit information used by financial institutions to assess the creditworthiness of an applicant. Why is maintaining a high credit score important? A high credit score means a good chance of being approved for a loan, getting lower interest rates, or getting a higher credit limit.

The key to building a good credit score is to become a responsible borrower. Any credit card holder must properly manage their credit and payments. Here are some tips on how to maintain a good credit standing and avoid having a bad credit score.

First, pay your credit card dues on time and, if possible, in full. Financial institutions send monthly statements to credit cardholders to show the outstanding balance of the cardholder. This will give you an idea how much you owe and when you should pay. There are also many convenient methods to pay your credit card bills, including online banking and through your bank’s mobile app.

Second, try not to splurge to avoid going beyond your credit limit. Make sure that you can pay your credit card purchases on or before your due date to prevent your debts from piling up.

Third, know your credit score. You can do this by obtaining a copy of your credit report. Being aware of your status can help you assess if there’s anything that you need to improve on before you apply for a loan or make big purchases.

Where to get credit reports and credit scores

We can access our credit reports here in the Philippines thanks to Republic Act 9510, or the Credit Information System Act (CISA) of 2008. CISA’s main objective is to “establish a comprehensive and centralized credit information system for the collection and dissemination of fair and accurate information relevant to, or arising from, credit and credit-related activities of all entities participating in the financial system.” From this objective, the law established a government-owned or -controlled corporation called the Credit Information Corporation (CIC), which serves as the central registry of credit information in the country.

Through data from banks, lending firms and insurance companies, CIC consolidates a credit report that can be accessed by any interested individual. The credit report contains useful information like loan contracts with lending institutions, utility subscriptions and other obligations which CIC has the authority to collect.

The credit report is important because it’s used to compute the credit score. CIC’s website has instructions on how to get a credit report and one of their accredited credit bureaus, CIBI Information Inc., has a web service for the issuance of credit scores. Bottom line, there are convenient ways to get our credit reports and scores, therefore we need to maximize these services to help us better manage our finances.

The need to be credit conscious

It has been almost 13 years since CISA was enacted. However, there is little awareness of credit reports and credit scores among Filipinos. Now that we know that there’s an enabling policy environment for the availability of credit information, it’s high time that we have a shift in mindset and become more credit conscious. Being credit conscious can contribute to our overall financial health. By understanding the importance of our credit scores, we’ll have the incentive to improve our borrowing behavior, boost our financial reputation and have the freedom to access different kinds of financial services for the betterment of our lives. INQ

The author, Jenelyn Z. Lacerna, is senior vice president and head of Unsecured Lending and Cards, Products and Sales at Bank of the Philippine Islands (BPI)