Know the five key factors that impact your credit score

In the Philippines, as in many countries, your credit score is a critical financial indicator that can significantly impact your ability to access loans, credit cards, and other financial services. Knowing what these factors are and how they affect your credit score is essential to your financial health.

In this earlier infographic, we discussed how the Credit Information Corporation (CIC) manages the credit scoring system in the Philippines, as established by the Credit Information System Act (Republic Act 9510).

The CIC is a centralized registry of credit data in the Philippines, the organization is tasked with collecting, consolidating, and sharing credit information with various financial institutions across the country. These institutions, including banks, cooperatives, insurance firms, and telecom companies, provide the CIC with their clients’ credit histories, which are then compiled into detailed credit reports. Authorized lenders can access these credit reports to make informed decisions about potential borrowers.

A credit score in the Philippines is from 300 to 950, with 950 being the highest rating. This means that the higher your score, the better. Anything below 650 and you might have some difficulty applying for loans and credit products.

These are the 5 key factors that impact your credit score.

Payment History – 35% Influence*

Payment history refers to your track record of making on-time payments for your credit obligations, such as loans and credit card bills. It includes information on whether you’ve made payments by the due date, any late payments, or any defaults on loans or credit cards.

Why it’s important: Payment history is a critical factor in your credit score because it reflects your reliability in repaying debts. Lenders want to ensure that borrowers are likely to repay their loans, and a consistent history of on-time payments indicates that you have a low credit risk.

TIP: Always make payments on time. Set up reminders or automatic payments to ensure you never miss a due date. If you have late payments or defaults on your record, work on settling those debts and negotiating with creditors for better terms.

Credit Utilization Ratio – 30% Influence*

The credit utilization ratio is the percentage of available credit that you are currently using. It is calculated by dividing your outstanding credit card balances by your total credit card limits.

Why it’s important: A high credit utilization ratio can negatively impact your credit score because it suggests that you may be heavily reliant on credit, which can be seen as a sign of financial stress. Lenders prefer to see a low credit utilization ratio, typically below 30%, as it indicates responsible credit management.

TIP: Aim to reduce your credit card balances. Pay down outstanding debts and avoid maxing out your credit cards. You can also request a credit limit increase on your cards, which can help improve your ratio as long as you don’t increase your spending.

Length of Credit History – 15% Influence*

The length of credit history measures how long you have been using credit. It considers the age of your oldest and newest credit accounts and calculates an average.

Why it’s important: The length of credit history is important because it reflects your experience in managing credit over time. A longer credit history generally suggests greater financial stability and responsibility, which can positively influence your credit score.

TIP: Maintain and nurture your existing credit accounts to ensure a positive impact on your credit score. Keep old accounts open, even if you don’t use them regularly, as they contribute to the length of your credit history.

Types of Credit – 10% Influence*

Types of credit, also known as credit mix, refers to the various types of credit accounts you have, such as credit cards, cash installment, and loans.

Why it’s important: A diverse credit mix can positively affect your credit score because it demonstrates your ability to manage different types of credit responsibly. Lenders like to see that you can handle various financial responsibilities.

TIP: While you shouldn’t open unnecessary credit accounts, diversify your credit mix over time by responsibly managing different types of credit when needed. For instance, if you only have credit cards, consider applying for cash installment or a loan if it aligns with your financial goals.

Recent Credit Applications – 10% Influence*

Recent credit applications refer to the number of times you have applied for new credit within a short period, typically the last six months. This includes credit card applications, loan applications, and inquiries from potential lenders.

Why it’s important: Multiple recent credit applications can negatively impact your credit score because it may indicate financial instability or a high need for credit. Each credit application generates a hard inquiry on your credit report, which can slightly lower your score.

TIP: Be mindful of how often you apply for credit. Only apply when necessary and when you’re reasonably confident you’ll be approved. If you’re looking for the best loan or credit card offer, try to do your rate shopping within a short time frame so that multiple inquiries are treated as a single inquiry for scoring purposes.

*Influence percentages from TransUnion Philippines

Understanding the factors that influence your credit score and taking proactive steps to improve them can help you build a solid financial foundation. Learn more about managing credit and setting your financial goals:

• How to keep good credit (and why you need it)
• Want to visualize your goals and plan your finances better? Start with Your ‘Why’
• Real talk: The hard questions you have to ask yourself about your finances