In the Philippines, a three-digit number holds the power to shape your dreams of homeownership. This number is your credit score, an essential factor lenders utilize to assess your creditworthiness. Your credit history, encompassing payment records, outstanding debts, and credit duration, form the basis of this score. A higher credit score signifies a reliable borrower who diligently repays debts on time. When applying for a home loan, lenders turn to your credit score to evaluate your eligibility and determine the interest rate you’ll be offered. In the Philippines, credit scores play a significant role in shaping home loan approval and the associated interest rates. Let’s find out the impact of credit scores on your ability to get a loan. 

Understanding Credit Scores

Credit scores in the Philippines range from 300 to 850, with 850 being the highest score achievable. A good credit score not only increases your chances of loan approval but also helps you secure loans and credit cards at lower interest rates. 

Accredited Credit Bureaus in the Philippines

To compile credit information, the Philippines has three accredited credit bureaus:

1. Credit Information Corporation (CIC): Established in 2008 under Republic Act 9510, CIC acts as the sole public credit registry and repository of credit information. It collects and maintains credit information from lenders and creditors, providing it to businesses requiring creditworthiness assessment.
2. TransUnion Philippines: As a subsidiary of TransUnion, a global credit bureau headquartered in Chicago, TransUnion Philippines delivers credit information to lenders, credit card companies, and other businesses in the Philippines.
3. CRIF Philippines: CRIF Philippines, a subsidiary of CRIF headquartered in Italy, was established in 2015. It offers credit information services to lenders, credit card companies, and other businesses in the Philippines.

These credit bureaus gather and maintain credit account information such as loans, credit cards, and other lines of credit. Key details include the borrower’s personal information, credit limits, payment history, outstanding balances, and more. Lenders and businesses use this information to evaluate creditworthiness and make informed decisions about extending credit.

Accessing Your Credit Report

Obtaining a copy of your credit report is essential. Any of the accredited credit bureaus can provide it, and the CIC’s website offers an online option. Reviewing your credit report allows you to identify any discrepancies or areas for improvement. Taking proactive steps to enhance your credit score will significantly benefit your home loan application.

Credit Score and Home Loan Approval:

Lenders generally consider a credit score of 700 or higher as the threshold for approving home loans. However, it’s worth noting that some lenders may extend loans to borrowers with lower credit scores, taking other factors like income and debt-to-income ratio into account. It’s advisable to explore various lenders and their specific criteria to find the best fit for your circumstances. By maintaining a good credit score, you enhance your chances of securing a home loan approval and moving closer to your dream of owning a home.

Credit Score and Home Loan Interest Rates:

Your credit score also has a direct impact on the interest rates offered by lenders for home loans. Borrowers with higher credit scores are often rewarded with more favorable interest rates. For instance, an individual boasting a credit score of 800 might be offered an interest rate of 6%, while someone with a credit score of 600 might face an interest rate of 8%. This discrepancy highlights the significance of cultivating and maintaining a strong credit score to secure the most advantageous terms for your home loan.

Improving Your Credit Score:

If you’re planning to apply for a home loan, taking steps to improve your credit score can significantly benefit your prospects. Here are a few strategies to boost your creditworthiness:

1. Pay bills promptly: Timely bill payments demonstrate your financial responsibility and contribute to an improved credit score.
2. Keep credit utilization low: Aim to utilize a small portion of your available credit. High credit utilization can negatively impact your score, so keep your balances manageable.
3. Extend credit history: The length of your credit history influences your credit score. Maintaining old credit accounts can help establish a solid credit history.

Factors that affect your borrowing capacity

Your credit score holds the key to unlocking homeownership opportunities in the Philippines. Lenders rely on this numerical representation of your creditworthiness to assess your eligibility for a home loan and determine the interest rates you’ll be offered. Aim to maintain a good credit score by practising responsible financial habits such as timely bill payments, low credit utilization, and extended credit history. By doing so, you increase your chances of securing home loan approval and accessing more favorable interest rates. Remember, building a strong credit foundation is a crucial step towards achieving your dreams of owning a home.

Maria Papa is a senior property and finance expert specialising in home loans, investment loans, and self-employed loans. If you have questions, you can email Maria at mpapa@maverickfinance.com.au.

Disclaimer: Your full financial situation will need to be reviewed prior to acceptance of any offer or product.