Credit score is important for lenders in determining how responsible you are as a borrower. It serves as a reflection of your financial reliability and capacity to repay debts. The higher your score, the easier it is to borrow more and get approval faster. 

To generate credit scores, the Credit Information Corporation (CIC), a government agency, requests a credit report from all lenders in the Philippines, including banks, credit cards, financial institutions, loan companies, and cooperatives, to whom they lend. This is stated in the Credit Information System Act (CISA) of 2008. The CIC provides this information to credit bureaus, which are companies that calculate a borrower’s credit score. They do this based on five criteria:

1. Credit payment history – How regularly you pay your debts, how much you repay, and whether you’ve paid on time or not.

2. The amount owed or credit utilization ratio – How much of your credit limit you spend. If you’re maxing out your credit limit, you’re likely to miss your loan repayments in the future and get a lower credit score.

3. Length of credit history – The average age of your credit card and loan accounts, and the length of time since those were used.

4. Types of credit used – Whether you’ve availed yourself of a variety of credit types such as auto loans, mortgages, and credit cards. This information gives lenders an idea that you can manage different credit types responsibly.

5. New credit – How often have you opened new accounts? Applying for multiple credit cards or loans at once can hurt your credit score.

Now that you know its how it is calculated, it’s time for you to work on building good credit!

Want to get your credit score? Take a look at this guide by CIC.