Got your credit card? Here’s all you need to know about your credit score

Have you ever wondered why some people get their credit card or loan applications approved while others don’t? It’s likely because of their credit score.

It’s important for you to learn about the significance of your credit score early in your financial journey so you can start on the right foot and nip bad credit habits in the bud. Let’s begin with the definitions.

Credit is your ability to borrow money that you can repay later, usually with interest. Debt is the money you owe when you use your credit.

For example, you have a credit card with a credit limit of PHP20,000 and you charge PHP3,000 pesos on that card. You now have PHP3,000 in debt and PHP17,000 in available credit.

When you start to use your credit — through financing tools like credit cards, loans, and postpaid plans — you will then have a credit score.

Your Credit Score is a three-digit number, usually from 300, 950 being the highest. It represents your capacity to borrow and repay what you owe. The higher your score, the better. (Source: TransUnion Philippines)

But you don’t have a long credit history yet, why should your credit score matter this early?

Your credit score is the foundation of your financial identity, and establishing a positive credit history early can pave the way for future financial opportunities. It’s what will dictate whether banks and other financial institutions should grant you more credit later on, when you need it for bigger things like a car loan, a home loan, or a personal loan for an emergency, to pursue further studies, or start a small business.

Here are tips to build a good credit score:

• Spend only what you can pay for.
  
• Pay your credit card bills and loans on time, and in full as much as possible.
  
• Create a budget to manage finances more effectively.
  
• Avoid opening new and unnecessary credit accounts.