How to build good credit: The factors that affect your credit score

Your credit score is the foundation of your financial identity, it’s what influences your ability to access credit cards, loans, and other financial services. Knowing the factors that affect your credit score is essential to your financial health.

Per TransUnion Philippines, a credit score is rated from 300 to 950, with 950 being the highest. This means that the higher your score, the better. Anything below 650 and you might have some difficulty applying for loans and credit products.

Here are the 5 key factors that impact your credit score:

1. Payment history or your track record of making on-time payments.
2. Credit utilization ratio or the percentage of available credit that you are currently using.
   
3. Length of your credit history.
4. The types of credit that you use.
5. Recent credit applications or the number of times you have applied for new credit within the last six months.

When you maintain a good credit score, you get access to more financial opportunities. Banks and other financial institutions are more likely to grant you more credit when you need it for major expenses such as buying a car, a home, or when you need to take out a personal loan for an emergency, to pursue further studies, or start a small business.

A good credit score can also grant you more favorable interest rates on loans, lower premiums on insurance, which translate to more savings over time.

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.