Credit Score in the Philippines: How it Affects Your Business Loan

Business Growth
Updated
May 20, 2024

For Filipino small and medium enterprises (SMEs), securing funding is a significant hurdle essential for business growth. Operational costs can rapidly exhaust working capital, especially when faced with cash flow interruptions or delayed client payments. Various financing sources like personal savings, credit lines, business loans, or investors can offer additional funds, but each carries inherent risks and complexities.

A critical factor for business owners to consider when seeking financing is their credit score. Your credit score assesses your creditworthiness—essentially, your capability to repay borrowed funds. Lenders prioritize examining your credit score when you apply for financial products such as credit lines, personal loans, or business loans. To delve deeper into how credit scores influence your business financing options, read on.

What is a Credit Score?

A credit score is a three-digit number that defines a person’s creditworthiness based on their past and ongoing financial behaviors. It is calculated using various factors such as your credit history, credit payments, credit utilization, and the types of credit you have used. A high credit score is a sign of financial health and can unlock access to financial opportunities such as loans, credit cards, and favorable interest rates.

In other countries such as the US, credit scores are used for almost everything involving credit – such as buying a smartphone or screening apartment renters. While the Philippines does not have a unified and widely-used credit reporting system, all local credit scoring models currently used by banks, insurance companies, and other financial institutions are managed by a government-sanctioned credit organization called the Credit Information Corporation (CIC).

The Role of the Credit Information Corporation

The Credit Information Corporation (CIC) is the Philippines’ central repository of credit information. They collect and provide standardized credit information to banks and other financial institutions for the purpose of assessing a borrower’s potential risk. The CIC also oversees and accredits local credit bureaus such as CIBI Information, Inc., CRIF Philippines, and TransUnion Philippines. These credit bureaus are authorized to access CIC’s credit data and provide standardized credit scores upon the request of financial institutions and individuals.

What is a good credit score?

In the Philippines, credit scoring ranges from 300 to 850. A score of 650-850 is considered fair to excellent credit; it suggests better financial standing and creditworthiness, which means you are likely to access credit and other financial services at favorable interest rates and terms. Anything lower than 650 is considered a poor credit score.

Credit score guide in the Philippines
Credit Score Guide from CIBI Information, Inc.

Take note that credit bureaus and financial institutions in the Philippines use different scoring models, so your credit score may vary or change depending on where you request your credit report from.

How is your credit score calculated?

Credit bureaus compute your credit score based on the following factors:

  • Payment history: How often you make payments on your credit types, and if you pay on time.
  • Amount owed: How much of your credit limit is used. 
  • Length of credit history: The age of your credit accounts and when they were last used.
  • Types of credit: Credit cards, loans, installments, mortgages, etc. that you have utilized.
  • New credit: How often you open new accounts and apply for credit. 

How to get your credit score

To know your credit score, you must obtain your credit report – a document that provides you with a detailed summary of your credit score, credit and payment history, and other important information that may influence your credit score, such as bank disputes and employment history. 

As of writing, you can get your credit score from different credit bureaus: CIBI Information, Inc. and TransUnion.

How to get your credit score from Lista PH

The CIC website mentions CIBI Information, Inc’s app as the easiest way to get your credit report online. In recent years, CIBI has also partnered with Lista PH app to provide credit reports in near-real time. Here’s how to obtain your credit report via Lista app:

  1. Download the Lista PH app for free.
  2. After installing, open the app and create your Lista account.
  3. Log in to the app and tap ‘Your Credit Score’ > ‘Request Now’.
  4. After agreeing to the Terms and Conditions, you will be prompted to provide your personal information. Input these and tap ‘Submit’.
  5. If you have an existing credit record with CIC, the app will then show you an option to request your credit report for ₱199. Pay within the app via e-wallet or debit/credit card.
  6. Prepare 1 valid ID and upload a photo of it on the app once prompted. 
  7. Follow the Liveness Check instructions to complete your app verification and request process.
  8. Wait for your credit score and report. It should appear on your Lista account within the same day.
You can get your credit score from the Lista PH app.

How to get your credit score from TransUnion

TransUnion is another accredited credit bureau that provides credit reports online. A ₱200 fee is charged for every credit report request. Compared to the previous method, TransUnion takes a while to provide credit reports; some people mention waiting weeks for the payment link and their actual report after submitting a request. Here’s how to obtain your credit report from TransUnion:

  1. Download the TransUnion Credit Report Request Form (version 1.4). After completing the form, save it in JPEG or PDF format.
  2. Scan two (2) valid IDs in JPEG or PDF format. A list of accepted IDs are included in the last page of the Request Form.
  3. Take a clear selfie of yourself while holding your two valid IDs. Ensure that the name and details on the IDs are legible, and that the selfie photo is in JPEG or PDF format.
  4. Create a password-protected ZIP file containing your completed Request Form, valid IDs, and selfie photo. 
  5. Send an email to inquiryph@transunion.com with the ZIP file and the password. 
  6. Wait for TransUnion to respond with the payment link and further instructions regarding your credit report request.

How your personal credit score impacts future loans and other forms of credit

Since your credit score is a measure of your creditworthiness, a higher credit score signals to lenders that you manage debts well and have a history of paying back what you owe on time – thus making you a lower-risk borrower. Here are other ways a high credit score can benefit you:

  • Faster approval for credit cards, loans, and other forms of credit. Applying for a loan or credit card when your credit score is low is likely to get your application rejected. With a high credit score, however, processing and approval is faster. This is because lenders can see that you have a good credit history, and are in good standing with other financial institutions such as banks and credit unions.
  • Better loan payment terms and borrowing limits. Credit scores directly influence the terms and interest rates of business loans. A higher credit score can lead to more favorable loan conditions, such as lower interest rates, higher borrowing limits, or longer repayment terms – especially if you also have a high annual income to match.
  • Reduced insurance premiums. Insurance providers also rely on credit scores when setting premiums for your auto loan, home loan, or insurance. 
  • Higher chance of approval for government loans. Government social services such as SSS and Pag-IBIG use credit scores to determine loan approval and loan amounts when extending housing loans and salary loans.

The Relationship Between Credit Scores and Business Loans

When you apply for a business loan, lenders assess not only your company's legitimacy and financial health, but also the personal finances and credit history of its key owners and stakeholders. Credit scores reflect an individual's ability to manage their finances, and lenders view them as an indicator of the stakeholders’ skill in handling company finances. From personal credit history, lenders also gauge if the company’s stakeholders are likely to assist in debt collection should the business default  – either by liquidating business assets or using their personal assets.

Unpaid personal loans, penalties for late payments, and other markers of negative loan history can increase your company’s risk profile – which, in turn, can lead to a higher interest rate or even a denial of your business loan application. It is therefore crucial for all company stakeholders to settle any personal loans on time and maintain a good credit score in order to demonstrate good financial skills and solid financial health.

How to build and maintain a good credit score

Building a good credit score takes time. Aside from being responsible with your finances, it’s important to be consistent in modeling good financial behavior. Just one missed payment can pull your credit score down, so make sure to practice the following good habits to maintain good creditworthiness:

1. Review your credit reports.

To maintain a good credit score, you should know what influences it. Pull up your credit report and review it to ensure there are no errors or discrepancies that might be dragging down your score. If you find inaccuracies, such as incorrect account details and fraudulent activities, you can dispute these with the credit bureaus to have them corrected, which can improve your score.

Your credit score also refreshes every 30 days. While you don’t have to request for a new credit report every month, it’s a good idea to request a new report before applying for a loan, credit card, insurance, and other forms of credit to gauge your likelihood of approval.

2. Pay bills on time.

Your bill payment history – particularly involving loan and credit card repayments – is one of the most crucial factors affecting your credit score. Setting up monthly reminders or automatic payments can help you stay on track and avoid late payments.

What if you can’t pay your bills on time? First, don’t be hard on yourself. Uncontrollable circumstances such as an illness or job loss can severely impact your financial health and ability to pay bills. Second, if you are dealing with a loan repayment, call your loan provider and negotiate for a loan rescheduling or loan restructuring. With loan rescheduling, your lender will extend your loan term to reduce your monthly or quarterly payments. With loan restructuring, your lender will change the type or repayment scheme of your loan, which can reduce your current interest payments, put a larger gap between your billing cycles, or modify the frequency of your interest payments. You may end up with a higher final repayment for both options, but you’ll minimize the appearance of late repayments or penalties on your credit report. 

3. Use 30% or less of your available credit.

This tip refers to your credit utilization ratio, which is the percentage of your total credit limit that you are using. In general, maintaining your credit use to 30% or less of your credit limit contributes to a healthy credit score, as it signals to lenders that you are not overly reliant on credit. Meanwhile, going beyond 30% or even maxing out your credit card limit can lead to a lower score, because it suggests financial strain and a higher likelihood of missing future repayments.

4. Limit requests for new credit.

While having multiple types of credit can be a good idea, opening them all at the same time raises red flags and hurts your credit score. This is because your credit report reflects all the times you have been approved or rejected for a loan or credit card. Thus, applying for credit multiple times in a short period implies that you are desperate for funds and unable to handle your financial obligations responsibly. It is also ideal to settle your previous debts before opening a new credit card or applying for a new loan; multiple ongoing debts can signal to lenders that you are at a higher risk of missing repayments.

5. Build your credit history by 'padding' your credit.

This seems counterintuitive with the previous point, but having too little credit can also cause your credit score to stagnate. This is because you don’t have much credit history that can be used to assess your creditworthiness, limiting your credit score and future borrowing potential.

There are several ways to responsibly pad your credit and credit history. The easiest one is to open an entry-level credit card. These credit cards have a low monthly income requirement, making them ideal for beginners and young professionals. Whenever possible, get one with no annual fees for life – this means that you won’t have to pay for the annual convenience fee that banks charge for credit card services. 

Another way to build credit history is by opening a secured credit card, a type of card where you pay a cash deposit upfront to serve as collateral in case you can't repay the amount you borrow. With a secured credit card, the amount that you put down in a deposit will become your credit limit for your credit card.

If you already have a credit card, it’s also good practice to request for a credit card limit increase every year or so. This reduces your credit utilization ratio and makes the amount you borrow seem smaller.

6. Pay off remaining debt and consider consolidating them whenever possible.

Any previous debts or delinquent credit accounts that are collecting interest or penalties will reflect negatively on your credit score. Focus on paying these off as soon as you can. You can negotiate with creditors to reduce your monthly payments, or consolidate multiple debts with high interest rates into a single loan so you can pay less in penalties and interest rates.

By implementing these strategies, you can work towards building a stronger credit profile over time, enhancing your financial health and improving your ability to secure loans and credit on favorable terms.

In conclusion, credit scores play an indispensable role in the financial landscape for Filipino business owners. By understanding and managing your credit score effectively, you can enhance your ability to secure business loans with favorable terms, thus supporting the growth and sustainability of your business in the competitive market. 

Leverage your business's potential and ensure continuous operations by opening a First Circle Credit Line. This financial tool is designed specifically for SMEs that need an always-ready source of funds as it is free to open and maintain. By having fast and flexible access to capital, it’s easy to manage cash flow fluctuations and seize growth opportunities without delay. Other benefits of our credit line include:

  • Up to ₱20 million of re-usable credit
  • No collateral, application fees, or maintenance fees
  • Interest rates as low as 0.99% per month
  • Application processing in 2 business days
  • Dedicated account manager
  • Minimal documentary requirements
  • Pay only for what you use; interest only applies to the amount borrowed

‍First Circle is a multi-awarded lending company supporting SMEs since 2016. To apply for a Revolving Credit Line, click here.

Ready to get your own revolving credit line?

Apply 100% online, and get a credit line worth up to ₱20M. Use and re-use your credit limit anytime you need a business loan.

Apply for a Credit Line

Continue reading