What is Credit Score?

Acquiring credit is an essential part of everyone’s financial journey. To some, it’s a way to get back on their feet while others use it as a means to attain good financial footing. It can serve many purposes be it an emergency or as capital for business opportunities.  

There’s a solid number of institutions that are more than willing to lend you the funds you need. These institutions size applicants up to see if they’re eligible to acquire a loan by checking their credit score. 

Credit score is the number used to determine someone’s capability to manage debt. Credit companies measure several factors including your credit payment history, the amount loaned or credit utilization ratio, length of credit history, types of credit used, and new credit. 

In countries outside the Philippines, credit scores normally range from 350-800. The higher the score, the better chances you have to acquire a loan. Unlike other countries like the United States and Canada, the Philippines currently does not have a unified system of credit reporting. 

While there is no standard system of credit reporting, the Credit Information Corporation is in charge of credit scoring in the country. Concurrently, banks resort to a myriad of available private credit report providers  in order to determine if an individual is eligible for a loan or not. 

• Length of credit history - This includes the length of time you had credit. If you own credit cards, they will average the age of your oldest card, your newest, and all other credit cards you hold. 

• Payment history  - This is made up of your level of responsibility when it comes to paying your credit/loans on time. A missed payment can cost someone’s credit score to drop by 90 -100 points.

• Money owed - This includes the money you currently owe across several lending institutions including the money you owe from credit cards. The bigger the amount you owe, the less likely you get approved for new credit.

• Credit application - Whenever you apply for a credit or loan, you get flagged for opening a new credit line. Thus, having multiple credit lines can affect your rating.

• Credit mix - These gauges the different types of credit accounts you own such as credit cards, cash loans, car loans, and mortgage.

Here are a few tips to follow in order to achieve and maintain a good credit score. 

1. Avoid delayed and missed payments.Sign up for automatic payments so that monthly dues can be settled just in time for your deadline. 

2. Stop going over your credit limit so that lenders won’t flag you for overspending. 

3. Do not close credit cards that have a remaining balance. 

4. Settle your existing loans/credit first before applying for a new one. 

5. If you can, build good credit early.