Why Paying on Time Will Be the New Trend: Credit Score in the Philippines

download (19)For a country with a budding consumer lending system like the Philippines, the idea of creditworthiness is as alien to many Filipinos as music is to the hearing impaired.

The numbers spell out just how financially immature the average Pinoy is. According to the National Baseline Survey on Financial Inclusion conducted by the Bangko Sentral ng Pilipinas (BSP) in the first quarter of 2015, only four out of 10 Filipinos are able save money. Of those who have savings, 32.7% deposit their money in banks, while 68.3% keep them at home. This is a rather small improvement from 2012 when the same BSP survey showed that 20% of Filipinos have a bank account.

Statistics from the credit sector also tell the same tale. The majority of Filipinos would rather borrow money from the informal sector like friends or family members (61.9%) or informal lenders (10.1%). Consequently, formal lending institutions get the smaller chunk of the loan market with banks turning out to be the least preferred money-lending option by Filipinos (4.4%). With the country’s promising economic growth pattern for the past few years, financial experts found that this credit-wary attitude of Filipinos has created a vacuum in the sector.

Before, it would’ve been deemed too much information for the general public to know about the intricacies of the credit system. But today, educating ordinary people about debt may prove beneficial in stimulating the dormant credit information ecosystem in the Philippines.

For the common Juan, understanding the “system” starts with the credit score. Much like how a person wants to know if he can trust someone before he lends the person some money, the credit score is a means by which lending institutions determine the amount of risk involved in granting a loan and reduce the likelihood of “bad” or unpaid debts.

A credit score is a numerical expression reflecting an individual’s creditworthiness generated by accredited accessing entities — known as credit bureaus — by analyzing an individual’s credit information. They usually range from 300-580, with higher values indicating more positive credit health. Computing the credit score involves assigning values to a person’s payment history, amounts currently owed, the length of credit history, accounts recently opened, types of credits in use, and number of hard inquiries on a person’s credit health. The algorithm and the weight given to each factor may vary from one credit bureau to another but the ratings will still create more or less the same impression of a borrower’s ability to pay out his debt.

So what does the regular consumer get from having a stellar credit score? Two words: better financing.

Creditors take the adage “time is money” literally because they literally lose money when payments are delayed which is why they value diligent payers.

Their valued clients are offered more flexible financing schemes, lesser interest rates, and are waived of extra fees. It’s also easier for them to get approved for bigger purchases like house or car loans.

But the thing with credit scores is that it’s much more difficult to build it up than to ruin it. Just one major red flag and it will stay reflected on your credit score for years, so one can’t be too confident about his credit score.


Credit Information and Its Safety

download (17)“A credit rating is an opinion on the financial soundness of an enterprise and its capability to repay its debts and the corresponding interest. It is a tool for risk assessment and as such, it provides investors with a simple and objective indicator of default risk to supplement their own credit evaluation.” (Business Finance and Philippine Business Firms, Nenita D. Mejorada, 2006)

Some of us are willing to give up the complacency and security of a regular job to go into business. We are willing to invest our money on a business where we can be our own master and employer. We make feasible studies, build our network, and offer our products through social eCommerce. But getting into business means having the acumen to take advantage of opportunities. We should know our target market, the goods and services our market needs, the growth and stability of our business, and the financial resources that we have.

There’s a great deal of business opportunities to try out there. A lot of us are willing to grab them but we don’t have the sufficient capital to do so. We may gradually save from our monthly pay, invest our money on assets, or if we’re lucky, we can make use of what our family has. Another option is to approach other parties who are willing to invest in our business. But most people opt to get loans for their business capital instead. These days, banks are more than willing to offer assistance in starting a capital. This what makes credit report an imperative source of information to get loan approval from banks.

What’s in a credit report?

Credit report contains your credit history – the types of credit you use, your account payment history, recent credit and loan applications and how much credit you’ve used. Your basic information, employment history are also included.

This data is being used by credit bureaus to generate your credit scores so you may gain access on your financial situation.

Safety of a credit report

We see a number of credit report available online. We see advertisements enticing us to see our online credit report and score by a click of a button. Initially, we are curious on our credit scores and how we can improve our assets.

But finding a reputable credit reporting is also an important thing to consider. Credit report information and its safety solely relies on verifying the legitimacy of a credit bureau. It should be valid and legal.

Having a secured credit bureau will provide us a privacy policy that gives us details on how our information will be used. They guarantee a secured place for our information which is crucial in safekeeping our data.

Personally Identifiable Information (PII) or Sensitive Personal Information (SPI) must be highly regarded due to the threat of identity stealing. It is essential for everyone to regard the security of their information to avoid future problems. Source: CIBI Information, Inc., a credit bureau in the Philippines (http://www.cibi.com.ph)

Good credit for financial freedom

Managing our credit plays a vital role in our financial life. It is essential not only on getting a strong credit history but it also qualifies us to get a better option in accessing our credit line. What knowledge we have about credit management gives us the control over our future. It is better to be equipped especially when it comes to our finances. And when it comes to finances, it works hand in hand in planning for our future. Financial management draws us away from obligations that may keep us from gaining financial failures. Securing a credit bureau gives us back that financial freedom.