How Credit Cards Affect Your Credit Score in the Philippines

Ever wonder why some people get approved for loans effortlessly while others face rejection? Most often, the key lies in their credit score—the metric lenders use to determine creditworthiness. For Filipino cardholders, understanding how credit cards impact this score is essential to making informed financial decisions.

Your credit score is a three-digit snapshot of your financial reliability, shaped by your borrowing and repayment habits. In the Philippines, it typically falls between 300 and 850. The higher, the better. Lenders rely on this number to decide whether to approve your loan and at what interest rate.

Think of your credit score as your financial report card. It tells lenders at a glance whether you're likely to repay what you borrow based on your actual credit history.

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1. Payment History (35% Weight)

Your payment history carries the most significant influence on your credit score, accounting for more than a third of your overall rating.

How it affects your score:

- On-time payments boost your score

- Late payments, defaults, or missed credit card bills severely damage your score

Consider this: A single 30-day late payment can drop a good score by up to 80 points, and it can take months of perfect payments to recover from that hit.

Best practice: Set up payment reminders or automate payments to ensure you never miss a due date. Even a single missed payment can impinge your score. Consistency is elemental. Create a calendar alert that pings you 5 days before your due date to give yourself ample time to make the payment.

2. Credit Utilization Ratio (30% Weight)

Credit utilization refers to how much of your available credit you're using at any given time. Credit utilization affects your credit score and carries nearly as much weight as payment history.

How it affects your score:

• Low credit utilization (below 30%) positively impacts your score
• High utilization signals financial strain and lowers your score

For instance, let's say you have two credit cards:

• Card A: ₱100,000 limit with ₱50,000 balance (50% utilization)
• Card B: ₱50,000 limit with ₱5,000 balance (10% utilization)

Your overall utilization is ₱55,000 out of ₱150,000, or about 37%—which is higher than the recommended threshold of 30%.

Best practice: To get good credit utilization ratio, keep your credit card balances below 30% of your credit limits. For example, if you have a ₱50,000 credit limit, try to keep your balance below ₱15,000 to maintain a healthy ratio. If possible, aim for even lower utilization (10-20%) to get a good credit score.

3. Length of Credit History (15% Weight)

The age of your credit accounts matters to lenders. Your credit history's length demonstrates whether you've been managing credit responsibly over time.

How it affects your score:

• Longer credit histories demonstrate financial stability
• Closing old accounts can shorten your credit history and potentially lower your score

For example, if you've had your oldest credit card for 10 years and your newest for 6 months, closing the 10-year-old card would significantly reduce your average account age and potentially hurt your score.

Best practice: Keep old accounts open even if you don't use them regularly. To keep them active without incurring debt, use them for small purchases (like a monthly subscription) and set up automatic payments. This maintains the length of your credit history and contributes positively to your score.

4. Recent Credit Applications (10% Weight)

Every time you apply for credit, it generates a "hard inquiry" on your credit report, as explained by Brankas in their guide to credit score Philippines.

How it affects your score:

• Multiple inquiries in a short period may indicate financial instability
• Each hard inquiry can temporarily reduce your score by 5-10 points

Imagine applying for three credit cards and a personal loan within a month. That's four hard inquiries that could lower your score by 20-40 points, signaling to lenders that you might be desperate for credit.

Best practice: Limit credit applications to essential needs and try to group rate-shopping (for example, when comparing loan offers) within a 14-30 day period to minimize the impact of hard inquiries. Financial systems typically count multiple inquiries for the same type of loan (like a car loan) as a single inquiry if they occur within a short timeframe.

5. Types of Credit Accounts (10% Weight)

Having a mix of different credit types demonstrates your ability to manage various financial responsibilities.

How it affects your score:

• A balanced mix of credit products (loans, credit cards) shows responsible management
• Over-reliance on a single credit type may raise concerns

For instance, having only five credit cards but no installment loans (like auto loans or mortgages) suggests a less diverse credit portfolio than someone with two credit cards, a car loan, and a personal loan.

Best practice: Maintain a diverse but manageable portfolio of credit products rather than having multiple accounts of the same type. Don't open new accounts just for diversity, but if you're considering a loan or credit product you actually need, remember that it could potentially benefit your credit mix.

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Myth: After 7 years, your credit history is cleared

Reality: While negative information may eventually fall off your credit report, there's no automatic "reset" after 7 years in the Philippines. Building good credit takes consistent positive behavior over time. The Credit Information Corporation (CIC) maintains records longer than many Filipinos realize.

Myth: Using credit cards always hurts your credit score

Reality: Responsible credit card use actually helps build your credit score. It's misuse, such as maxing out cards or missing payments, that causes damage. Think of credit cards as financial tools that, like any tool, can build or destroy depending on how they're used.

Myth: Checking your own credit score lowers it

Reality: When you check your own credit report (known as a "soft inquiry"), it has no impact on your score. Only "hard inquiries" initiated by lenders when you apply for credit affect your score. Regular self-monitoring is actually a recommended practice.

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Building Credit With Your First Card

If you're new to credit cards, start by:

1. Getting a secured credit card if you can't qualify for a traditional one like if you have no credit score yet. Secured cards require a cash deposit that serves as your credit limit, minimizing risk for the issuer while helping you build credit.
2. Making small, regular purchases that you can pay off completely. Try using the card for a predictable monthly expense, like a subscription service or utility bill, to establish consistent payment history.
3. Setting up automatic payments to avoid missed deadlines. Configure your banking app to pay at least the minimum due automatically, with a reminder to pay the full balance separately.
4. Checking your credit report after 6 months to track your progress. Look for positive payment history reporting and note any improvements in your score.

Consider this real-world example: Maria, a fresh graduate in Manila, started with a secured credit card with a ₱20,000 limit. She used it only for groceries (about ₱5,000 monthly), paid it in full every month, and after one year qualified for an unsecured card with better benefits and a higher limit.

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If you're struggling with credit card debt that's pulling your score down, consider seeking help from financial advisors or credit counseling services. They can provide proven strategies to manage debt, lift your credit score out of the red zone, and set you back on track with a positive credit standing.

Warning signs that you might need professional help include:

• Using one card to pay another
• Paying only the minimum month after month
• Elevated anxiety and stress when thinking about your finances
• Receiving collection calls or notices

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Take Charge of Your Credit Health Today

Understanding how credit cards shape your credit score empowers you to make smarter financial moves. By paying on time, keeping your utilization low, and being strategic with credit applications, you lay the groundwork for stronger creditworthiness. One that unlocks better financial opportunities.

Good credit isn’t built overnight. It’s a marathon, not a sprint, and the rewards come to those who stay the course. Stay disciplined, make the right choices, and watch as your financial options expand in ways you never thought possible.

References

• MoneySmartPH. "Credit Card Utilization Guide." https://www.moneysmart.ph/articles/credit-card-utilization/
• Brankas. "How to Check Credit Score in the Philippines." https://blog.brankas.com/how-to-check-credit-score-in-philippines
• Credit Information Corporation (CIC). "Understanding Your Credit Score." https://blog.brankas.com/how-to-check-credit-score-in-philippines

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