Credit Reports in the Philippines

Credit Reports in the Philippines

Despite the ubiquity of ads for credit cards, the Philippines has one of the lowest credit card penetration rates in Asia and the Pacific.

According to the World Bank Global Findex database, a paltry 1.9% of Filipinos aged 15 and older had a credit card in 2017 – down from 3.2% in 2014 and well below the 21.6% average in Asia and the Pacific, which encompasses 17 countries in East and Southeast Asia.

Reasons for low penetration rate

Poor financial literacy is generally presumed to be the main reason for low credit card penetration in the Philippines, but a 2018 MoneyMax survey with 2,238 respondents tells a different story:

  • Interest rates – 22% of respondents cited steep monthly interest rates as the primary reason for not owning a credit card.
  • Self-discipline – 18% believed that owning a credit card could lead to overspending.
  • Approval process – 19% said that the tedious approval process prevented them from owning a credit card.

Cebu Bankers Club President and Maybank Cebu Senior Manager Neil Darwin Credo believes that the latter is one of the biggest reasons for the low penetration rate in the Philippines.

He says strict bank requirements and low credit card approval rates keep credit card usage among Filipinos to a minimum. Stringent income requirements also mean that only affluent Filipinos from the middle and upper classes are able to qualify for the approval process.

If you’ve been trying to get approved for a credit card in the Philippines, there’s very little you can do about high interest rates or the approval process.

But there is one thing you have control over – your credit report.

How to build your credit report

Banks rely on credit history to determine whether or not you can make timely payments on your card. Your credit history is a record of how you’ve used your credit card in the past, showing your ability to settle debts on time.

Unlike the United States, there’s no centralized system and standard scoring for credit reports in the Philippines. Because of this, major Philippine banks use an internal database, which contains records of previous and existing clients’ management of their lending and savings accounts, to determine eligibility.

They also rely on external sources like the Credit Information Corporation (CIC), TransUnion, Bankers Association of the Philippines Credit Bureau, and Consolidated Cancelled Credit Cards (CCAP C4) negative file.

External sources like TransUnion provide information such as:

  • Personal information (i.e. name, government-issued identification numbers, etc.)
  • Accounts of bill-paying records with past creditors
  • Public records that affect creditworthiness (i.e. tax liens, bankruptcy, and court orders)
  • Consumer statement of disputed items in consumer’s credit history
  • Inquiries, or list of banks that have inquired about your credit history

Once the bank is satisfied with your credit history and the results of their background check, they will approve your credit card application.

To strengthen your credit report, you must:

  • Start early – Making regular payments is one of the best ways to build credit history and show banks that you’re reliable.
  • Pay on time – A good track record with no missed payments on the due date over a period of several years is one of the main contributors to your credit score.
  • Catch up on late payments – In cases where missing a payment on the due date is unavoidable, settling the amount ASAP can lessen the negative effect on your credit history.

    Credit Card Association of the Philippines (CCAP) Executive Director and Spokesperson Alex Ilagan says that overdue accounts not exceeding 30 days indicates that late payment was unintentional, so your credit history will stay clean.

  • Keep debt to a minimum – Huge sums of revolving debt have a negative impact on credit history, so keep your debt low. In the US, for example, it’s generally advisable to keep debt-to-credit ratio to 30% of your credit limit.
  • Be consistent – Building good credit history can’t be done overnight. To show the banks that you’re a responsible card holder, you need to maintain healthy spending habits and good credit behavior over the years.

Got questions about building a good credit report in the Philippines? Let FilePino assist you! Contact us at +1.806.553.6552 (USA) or +63.917.892.2337 (Philippines).