Let’s say there are two borrowers. Both of them are applying for the same PHP 100,000 loan, and they both have similar jobs, similar spending habits, and the same monthly income. However, the first one has a good credit score and the other has recently come out of some credit card debt. Chances are that the first borrower will get approved faster and may receive lower interest rates. The second might either be offered higher interest or, worse, be denied the loans altogether.
These scenario plays are a daily fact of life in local finance. While credit scores may not be discussed in the Philippines as they are in other countries, your credit score still matters more than you think. Let’s dig into how your credit score can influence your rates on your personal loans.
1) First-Time Borrowers May Have to Pay More
Because the credit score system depends on past data, new borrowers can be at a disadvantage. If you’ve never borrowed before, you’ll have no credit history, which means a low score, even if you have money in the bank. If you do get approved for a loan, you’ll probably have to offer collateral or pay higher interest rates to offset the lender’s risk, since they’re lending to someone no other lender has dealt with.
Fortunately, the rise of financial inclusion in the Philippines has made it easier to access small, unsecured personal loans through mainstream digital platforms. These loans, unlike informal or private borrowing arrangements, are officially reported and can help establish your credit profile. You can begin building a solid credit score by securing a personal loan with low interest rate in the Philippines and consistently paying it on time. Once you’ve established a pattern of prompt payments with a trusted lender like Maya, you’ll build your credit score, enabling you to access much better loans later on.
2) There Are Loan Options for Everyone
Thankfully, a lower credit score doesn’t automatically mean you no longer have access to credit. Digital-first lenders may choose to weigh your credit score against alternative data, like transaction history, e-wallet usage, or employment patterns. Indeed, informal private lenders may even disregard your credit score altogether and base your risk on your shared personal history. Still, if possible, you should aim to build a good score to ensure that you always have safe loan options available to you.
3) Your Credit Score Impacts Loan Approvals
A poor credit history can also delay your approvals and reduce the amount you're eligible to borrow. This makes sense since most lenders will hesitate to extend themselves to borrowers who, realistically, might not pay them back. In contrast, a solid credit score, though not a complete guarantee, can signal responsible financial behavior, making you a more attractive candidate for fast approvals and better terms.
4) Credit Inquiries Can Affect Your Score
Each time you apply for a loan, a formal inquiry may be recorded on your credit report. These can temporarily bring your score down as a safety measure against aggressive or repeated borrowing, both of which may be a red flag to lenders.
Rather than formally applying to several different lenders all at once, be strategic. Try to compare loan options first, then only apply to those with realistic terms and eligibility requirements that you’re sure you will pass.
5) Your Credit Score Isn’t the Only Factor
Credit score is more of a shorthand measure of trustworthiness than anything else. If a lender were so inclined, they could look past that and use other factors like your income, employment status, and other financial documents to get a more complete picture of your ability to pay back your loans.
Modern digital banks might also use your transaction history and other past interactions to quickly weigh your risk, enabling them to verify your creditworthiness and disburse funds within minutes instead of weeks.
6) Not All Lenders Disclose Their Rating System
Lenders with less transparent practices will seldom divulge how they assess client risks. Generally speaking, however, most will look into your credit rating before they offer you a loan. Even so, the lack of clarity can make it difficult to understand why you received a particular offer or why you were rejected altogether. To protect yourself, ask questions about their assessment process and look up third-party reviews of their services before you accept their offers.
7) Paying Off Debts Before Applying Can Lead to Better Rates
If you’re planning to borrow, settle any existing debts and clear overdue bills a few months before you inquire. Just a few months of on-time payments will make a measurable difference in credit ratings, paving the way to better interest rates and a wider selection of loan options.
8) Personal Loans Can Help You Build (or Rebuild) Your Credit
Somewhat ironically, the right loan can be a tool for improving your credit score. The key is to use mainstream loans and to always pay on time. If, for instance, you don’t qualify for a high-value personal loan, taking out a much smaller personal loan and paying it on time will improve your credit score, helping you to secure the loans you want in the future.
Start Borrowing Smarter
The connection between your credit score and your loan interest rates is not always as straightforward as you might think. While it does play a huge part in helping you score good quality loans, it’s hardly the only thing that matters. Even if your credit score isn’t the best, you’ll always have some options available to improve it over time.
In any case, whether you have a great credit score or are just building it up, knowledge will help you make safer, wiser decisions. Use what you’ve learned to start improving your credit habits today. When you're ready to borrow, look at options from today’s fast-rising digital banks to guarantee fast, secure, and transparent funding.
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