Everything You Need to Know About Your Credit Score

As you hit a certain level of financial security, you will come to a point where you fancy a new car or plan to buy property to make one of life’s biggest and most important purchases. But despite having the liquidity to acquire them, it’s always prudent to pay for them in installments to keep your funds in check.

When this happens, it’s common practice to apply for a loan at banking institutions. This gives you more financial flexibility when you only have to pay the bank in installments, plus interest. While this is ideally the way to go, you still have to pass a credit investigation to qualify for a loan, and a good credit score is needed.

What is a Credit Score?

A credit score is a number used in certain countries that aim to predict your chances of meeting financial obligations such as paying back a loan. The higher your score, the easier access you have to various financial services and credit options. It opens doors for borrowers to different loan opportunities, from financial institutions to credit apps, and boosts their chances of approval.

However, not all countries use credit scoring. If they do, many differ from the system used in the US and Canada. Fair Isaan Corporation (FICO) is the standard used for credit scoring in the US, with a similar scoring system done in Canada. In the Philippines, the Credit Information Corporation (CIC) handles credit scoring, but there’s no centralized credit reporting like there is in the US.

To give you a better understanding of your credit score, refer to this infographic that gives you the low-down based on the widely used FICO credit scoring system:

There is no single system of credit scoring to rule them all, and many countries do not have the systems used in the US and Canada. There are also different credit reporting agencies in other nations, with some not having a centralized credit reporting infrastructure in place. Here’s how credit scoring differs in some countries around the world:

USA: Equifax, Experian, and TransUnion

The US has a comprehensive credit reporting system to ensure that both positive and negative financial histories are included, with on-time payments, judgments, and bankruptcies also recorded in the report.

The three agencies—Equifax, Experian, and TransUnion—use these data to come up with your FICO score, which is calculated based on the following elements:

  • Payment history (35%)
  • Amount owed (30%)
  • Length of credit history (15%)
  • New credit (10%)
  • Credit mix (10%)

Most banks and credit providers use the FICO system to produce a score from 300 to 850, with any number above 720 considered as an outstanding score.

The agencies collect data differently, so the FICO scores they generate can vary depending on the bureau providing the information used in the calculations.

Canada: Equifax of Canada Inc. and TransUnion Canada

These two main credit reporting agencies include information about every loan you’ve taken out in the last six years, which also covers how much you owe if you’re making payments on time, and the credit limit of your accounts.

Canadian credit scores can range from 300 to 900, with the formula used to calculate your score largely unknown. The average score of 27% of Canada’s population is between 750 and 799. The number you’d want to hit is 650, and anything less than this can spell trouble in having your credit applications approved.

Australia: Equifax, Dun and Bradstreet, Experian, and the Tasmanian Collection Service

When applying for a loan or other type of financing in Australia, these four credit reporting agencies will collect your financial information and collate them into a credit report. However, each agency collects your data differently, while also having its own system of determining your credit score.

The data used in the calculation of your credit score may differ slightly between the agencies, but they will include the following:

  • Your credit file’s age
  • Type and amount of credit you’ve applied for in the past
  • Negative credit listings
  • Court cases or defaults
  • Credit account payment history
  • Opened and closed accounts

Since March 2014, Australia has been using positive or comprehensive credit reporting, which means lenders can now make a more balanced assessment of consumers’ credit history by accessing information about their current accounts and payment history.

UK: Callcredit, Equifax, and Experian

Just like their cousin across the pond, the UK has three credit reporting agencies that collect financial data under a comprehensive credit reporting system. This ensures that positive borrowing information such as payments done on time and in full is included, together with any negative marks. However, each agency uses its own scoring system to calculate your credit score:

  • The Experian credit score starts from 0 to 999, with ratings above 881 considered good and 961 or over outstanding.
  • Equifax scores range from 0 to 710, with scores of 467 and above ranked as excellent.
  • Callcredit generates a rating for potential borrowers starting from one as the lowest up to five as the highest.

With these many factors involved, your borrowing power in the country depends on the reporting agency and each credit provider’s lending criteria.

India: still under development

A joint effort of the Indian government and the Reserve Bank of India lead the creation of the Credit Bureau Information India (CIBIL) back in 2000 to collect records of each individual’s loan and credit card payments. CIBIL has since worked with TransUnion in collecting data on home loans, car loans, personal loans, and credit card accounts to generate a score from 300 to 900.

Philippines: Credit Information Corporation (CIC)

The Philippines has a government-owned and controlled corporation that collects credit information from various sources such as banks, financial institutions, insurance companies, financing firms, credit cooperatives, utility companies, and other businesses that offer loans. The CIC collates all the information of a potential borrower to help creditors evaluate their ability to pay.


Credit Scoring in the Philippines

Given the current situation of the credit information exchange system in the Philippines, only individuals with credit records or transactions to financial institutions involved in credit-related activities are entitled to avail of their credit reports and scores.

To generate your credit score, a special assessing entity (SAE) such as the CIC-accredited Credit Information Bureau, Inc., (CIBI) processes the credit information of a particular individual upon request. The score ranges from 300 to 850.

It’s crucial to keep your score high to have more opportunities to loan and be approved for higher amounts. If you’re thinking of working to improve your score, here are a few things you’ll need to do:

  • Build a good credit history early on by applying for a credit card a year after working for the same employer. This allows you to be a responsible spender while learning how to pay your bills on time.
  • Avoid late or missed payments to maintain a clean record.
  • Don’t go over your credit limit not only to avoid getting a low score but also to skip paying over-limit fees.
  • Lower your debt/credit ratio, so you won’t be stressed out in making payments on time.
  • Avoid unemployment, since your ability to pay your debts depending on your job.
  • Skip on having too many credit cards. If you fall heavily in debt, your score will be in trouble.
  • Don’t close cards with remaining balances, so there won’t be debts left unpaid.

Conclusion

Credit scoring is an essential way for lenders to find out if borrowers can pay back what they owe. It’s also a good standard for those who plan to apply for a loan, so they can take care of their credit standing and not fall into substantial debt. This helps borrowers become responsible for managing their finances, mostly by paying the bills on time and never going over the limit. Keep in mind that a high score makes it easier for you to apply for loans at banks and other financial institutions when you need them.

Applying for small loans may be an excellent place to start, so you could learn how to be a responsible borrower. Download Cashalo’s credit app to ensure you have a good option for emergency funds at times when you come up short.