All about Credit: What Is a Credit Score and How Can I Improve It?

All about Credit: What Is a Credit Score and How Can I Improve It?

You are here, you probably own a credit card, or you are planning on getting one. Well, you have a few things to learn first.

What is a credit score? You ask. And what is a good credit score?

Well, while different lenders have their own standards for rating credit scores, 700 and higher (on a scale of 300 to 850) is generally considered good.

Lenders typically use your 3-digit credit score to help them decide if they’ll approve you for a loan or credit card. In general, the higher your score, the better your chances of getting approved. Having a good credit score can also help you save on interest rates.

Of course, a specific score doesn’t guarantee that you’ll be approved for credit or get the lowest interest rates, but knowing where you stand may help you determine which offers to apply for – or which areas to work on before you apply.

Desirably, you can improve your credit score if you have a good credit history.

What is credit history?

A credit history is an account of how you’ve used your credit over the years. This, in turn, 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.

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The problem with the Philippines, however, is that there’s still no centralized credit reporting in the country 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. The most common external sources are the Bankers Association of the Philippines Credit Bureau or the CCAP C4 (Consolidated Cancelled Credit Cards) negative file.

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How can you have a good credit history?

1.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).

2.Don’t miss payments. Remember that banks are looking at your past usage or credits. A good track record of several years with no missed payments on due date means you are a good, responsible credit card owner. Indeed, 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.

3.If you’ve missed payments, get back on track. Let’s face it, sometimes, missing payments is unavoidable. Banks know that. But catch up with payments as soon as you can to lessen the bad effect it has on your credit history. 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. Got it?

4.Keep debts low. Having a lot of revolving debt reflects badly on your credit history. Reduce your debts — in the US and even here in the Philippines, 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.

5.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.

Disclaimer:

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