Importance of Keeping a Good Credit Score

Whether or not you see yourself with the prospect of applying for loans, either for a brand-new car or a house and lot in the Philippines, establishing a good, if not excellent, credit score is indicative of your great sense of financial responsibility.

This means that you make loan repayments regularly without failure, meeting payment deadlines when you borrow money, and simply ensuring that all your financial obligations are fulfilled and in place.

Establishing a good credit score has its deceptively simple guideline. To better comprehend this industry jargon, how important an individual's credit score is, and how to keep a track record of creditworthiness, this article zeroes in on the tremendous importance of establishing a good credit score and more tips to help you get started.

What Exactly is a Credit Score?

An individual's credit score is based off of how responsible (or irresponsible, for that matter) a person is when paying their credit dues.

A credit score ranges from as low as 300 up to 850, with the latter being the highest credit score.

What is a good-enough credit rating? A score from 600 up to 759 is considered a good credit score to enjoy various perks, which we will touch more on later. Anything lower than that range is a notorious recipe for loan application rejections.

Credit bureaus in the Philippines evaluate credit scores based on five major criteria.

1. Credit payment history

This will reveal data about your past borrowing, whether or not you pay regularly and on time.

2. Credit utilization ratio

Every credit card owner has a credit limit. How much you spend on them will also be evaluated. If you spend so much in a short period to the point of maxing out your credit, it is highly likely that you will obtain a low credit score for your impulsive use.

3. Credit history length

This criterion refers to your credit card's average age and how long you have been using them.

4. Credit mix

Types of credit that can be used include an auto loan, personal loan, mortgage, and credit cards. Having availed of any of these lending services will give lenders the impression that you have, as a matter of fact, the capacity to pay loans and is a responsible payor.

5. New credit

Finally, new credit refers to the frequency with which you set up new accounts. Simultaneously applying for various loans can adversely impact your creditworthiness and hence would give you a low credit score.

Difference Between Credit History and Credit Report

Credit history and credit report are interrelated but not alike.

Credit history is a record of your demonstrated capability of repaying debts, especially on time and regularly. Your credit history is within your credit report.

This means that credit reports are the comprehensive and more detailed record of your credit history, which includes data on your missed payments, if any, outstanding balances, as well as your personal information like full name, address, date of birth, employer, TIN and SSS numbers, among others.

In simpler terms, your credit history is a record of your repayment ability as a responsible borrower. A credit report is a more detailed breakdown of all important financial transactions you've made in the past, such as credit accounts, installment loans like personal loans, car loans, and mortgage loans. Your credit report is the basis on which your creditworthiness is evaluated.

How to Obtain a Copy of your Credit Report Online

While there is no free credit report in the Philippines, you can still obtain a copy of your credit report through an online application process set by the Credit Information Bureau, Inc (CIBI). The fee that needs to be first secured is 235 pesos, inclusive of Value Added Tax (VAT).

Know if your credit score suffices to be considered "good" through the online process below.

Step 1:

Access the CIBI website app. It is currently only accessible using a laptop or computer.

Step 2:

For account verification, create a username and password, and upload one primary ID, one secondary ID. You will have to schedule an appointment for character verification via video call. Operating days and hours are Mondays to Fridays, 8:30 AM to 5:30 PM.

Step 3:

The next step is called the Know-Your-Client (KYC) verification, which is an important part of the process for identity validation and ensuring that the requester of obtaining a credit report is the same person.

Step 4:

Make the payment for the P235 fee from any of the payment channels listed by CIBI.

Step 5:

After successfully completing the first four steps, you will receive an email from CIBI with your credit report showing your credit score from 300 to 850.

5 Reasons Why Having a Good Credit Score is Important

Banks and lending institutions in general cannot just grant loan requests without considering the financial capabilities of each applicant. Aside from doing their own assessments, lending institutions also refer to a person's credit history via a credit report obtained from credit bureaus. Hence, it is important that all your financial transactions, past and present, must demonstrate your ability to pay debts.

In return, your proof of creditworthiness will allow you to enjoy and avail of the following benefits, which come from having a good credit score, ideally from 600 to 850, in the Philippines.

1. Guaranteeable approval for loans and credit cards

This is arguably the most significant outcome of having established a good credit score. With it, you will not worry about having your loan and credit card applications rejected, as your creditworthiness is backed by credit bureaus.

2. Lower Interest rates, higher loan amounts to avail

Another reason is you will get to enjoy higher loan amounts to apply and be approved for, as well as lower interest rates. One example is when applying for a housing loan and you are eyeing a relatively more expensive house model. You have a remarkable chance of getting approved for the house and lot you chose. This is not the case if you have a lower credit score, wherein you will not even entertain the idea of opting for the more costly house type, but would gladly settle on a cheaper course without necessarily sacrificing house features, residential perks, and amenities.

3. Reduced insurance costs

If you apply for a car loan in the Philippines, you could demonstrate your creditworthiness and become eligible for premium discounts and avail of relatively lower insurance rates. A bad credit score, on the other hand, can cost you much higher premiums. Or worse, it could get your car loan application rejected.

4. Could be used in payment negotiation of property leases

Besides credit card payments and car loans, you can also take advantage of your high credit score when renting a residential property. You could present your proof of creditworthiness and negotiate on payment terms.

5. Boost your employment chances

Having a high credit score does not only make you avail of financial services without worrying about being rejected. It could also help you win jobs you'd apply to, as some employers look for prospective employees who have a credit history of being financially responsible.

What you Should Do to Obtain Good Credit Score

If you're serious about building a good credit score and avail of the benefits that come along with it, below is a guideline to help you take the next steps.

• Fulfill your loan payment obligations. Pay, pay, pay.

• If you haven't yet, start to build your credit history. As in now.

• Do not be tempted to max out your credit limit or even close to it.

• Apply to different credit types, and do so responsibly.

• Avoid having multiple loans at once in a short period of time.

• Don't rush. Focus on building a history of you being consistent in paying your dues over time.

• If you got your credit report and strongly don't agree with the result, file a dispute.

Make Smart Use of your Good Credit Score and Invest in Real Estate

Aside from using your credit card to fund home expenses, the real estate sector has, over many years, enjoyed a good reputation for being resilient in times of economic crises, making it an ideal investment vehicle to grow your money. Make smart use of your creditworthiness by investing in a affordable house and lot for sale through Lumina Homes.

For the last 10 years, Lumina Homes has firmly established itself as a force to reckon with in the real estate market. It was awarded by none other than the Pag-IBIG Fund as a prime provider of affordable housing in the Philippines. For property seekers with a good credit score like you have three financing options to choose from: banking, in-house financing, or through Pag-IBIG.

With a good credit score, there is only little doubt, if at all, that your home loan application will be approved. Pag-IBIG remains to be a popular choice of financing option among property seekers for having the longest repayment term of up to 30 years. Still, you can very much choose to seek a housing loan through banks, which offer lower interest rates compared to Pag-IBIG.

With a variety of house types and guaranteed access to perks and amenities, an affordable house and lot through Lumina Homes are achievable. Book your home reservation with us before the year 2022 culminates, and welcome 2023 with a Lumina house and lot in the Philippines!