Credit Reports In The Philippines — What You Need To Know
Not getting approved for that new credit card? Got a bad rate on your personal loans? It probably has something to do with your credit history. Your credit history is the single biggest factor that affects the likelihood of you getting approved for loans or credit cards. It also affects the interest rates you get on the money you borrow — if you’ve got a good credit history, you’ll get the most favorable rates, but if you’ve got a bad one, you’ll get worse ones.
Learn the basics of a Philippine credit report by reading on:
What is a ‘credit history’ anyway?
A credit history is an account of how you’ve used your credit over the years that shows your responsibility in repaying your debts. Banks use this history to determine whether you’ll be likely to make payments on time or not.
There’s still no centralized credit reporting in the Philippines like there is in the US, where 300 is a bad credit score and 850 is the best. Because of this, “most big banks either rely on an internal database (record of past and existing clients’ handling of both lending and deposit accounts) or external sources,” says Alex Ilagan, executive director and spokesperson of the Credit Card Association of the Philippines (CCAP), in an email interview with iMoney Philippines. The most common external sources are the Bankers Association of the Philippines Credit Bureau or the CCAP C4 (Consolidated Cancelled Credit Cards) negative file.
Back in September 2013, the Inquirer reported that the Credit Information Corporation (CIC), a centralized national credit bureau, was expected to start operating in December 2014. Jaime Garchitorena, president and CEO of CIC, said in an interview with ANC’s On the Money that the bureau should be up and running by the end of 2015/early 2016.
Until then, there’s TransUnion, one of largest credit reporting agencies, which has been operating in the Philippines since 2011. They’re partnered with BPI, Banco de Oro, Metrobank, HSBC, and Citibank. The partnership created a centralized credit-information system that collects credit data. However, according to Ilagan, “the cost is very prohibitive and access is limited to member banks only,” meaning that banks who have not partnered with TransUnion don’t have access to the reports they provide.
What goes into your credit report?
At its launch in 2011, TransUnion East Asia’s president said that they had “started to gather personal information on credit card borrowers, their educational background, credit record, employment history and other data that would allow banks and financial institutions to manage risks associated with lending,” according to Business Mirror.
Your credit history with TransUnion has the following sections:
- Consumer-identifying information such as name and government-issued identification number
- Account histories of your bill-paying record with credit grantors
- Public records of items that may affect your creditworthiness, including bankruptcies, tax liens and court judgments
- Consumer statement of data in your credit history that you have disputed
- Inquiries, which list the companies that have requested your credit history
TransUnion gets this data from its partner institutions as well as public records. Partner banks can request TransUnion’s information, and along with your other records, they use that information to make decisions. However, an agency like TransUnion doesn’t make credit decisions — that’s 100% up to the banks themselves — they just give information.
How do banks use your credit report?
For example, you’ve taken out a loan with Bank A, and they’re partnered with a credit reporting agency. Bank A will report your payment activity with them, and the agency keeps a record of these reports.
When you go to Bank B to open a new credit card, they’ll request a copy of your report from the agency (if Bank B is partnered too) so they can see your past credit and payment history, which will include your loan and payment activity with Bank A. Bank B will then use this information to decide whether to approve you for a credit card or not.
If you’re on time with all your payments and you don’t have too much debt already, great! Bank B will approve you because you’re probably a good credit risk. If you’ve missed many payments or have taken out a lot of loans from different banks, Bank B will be less likely to approve you because you’re probably a bad credit risk.
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. Check out these starter credit cards and start building your credit history ASAP. But you have to be disciplined and pay it off every month (or at least a huge chunk of it so you lessen the interest you have to pay).
- Don’t miss payments. “A good credit history consists of a track record of several years with no missed payments on due date,” Ilagan says. 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. Sometimes, missing payments is unavoidable. But catch up with payments as soon as you can to lessen the bad effect it has on your credit history. According to Ilagan, if your overdue accounts don’t exceed 30 days, “this is usually interpreted that missed payments were unintentional, forgot the due date or did not receive billing statement on time,” and your credit history will remain good.
- Keep debts low. Having a lot of revolving debt reflects badly on your credit history. Reduce your debts — in the US, it’s recommended that you keep your debt-to-credit ratio at 30%. Meaning, if your credit limit is P100,000, your balance should be P30,000 or less.
- Keep all of the good work up. Having a good credit history isn’t a quick fix. You’ll need to be consistent, and to keep up your good credit behavior over many years.