Credit Reference in the Philippines: What It Is and Why You Need It

When conversations steer toward personal finances, it's not uncommon for the term "credit reference" to pop up—sparking curiosity and raising questions about its importance.

This interest is particularly relevant for entry-level employees, millennials, and Gen Z individuals who are just starting their financial journeys. As these demographics increasingly venture into entrepreneurship or seek to establish themselves in the professional world, understanding the significance of credit history becomes paramount.

In the Philippines, as in many other countries, starting a credit history is not only indispensable but often necessary for one’s financial profile in the long run, serving as a key to opening doors to various opportunities.

Credit references in the Philippines matter in financial transactions, and knowing the distinctions between each one can help you meet your personal finance goals.

What is a Credit Reference?

A credit reference is a comprehensive document that outlines financial behavior, including transactions and obligations. Moreover, it provides insights into your financial history, credibility, and trustworthiness.

Lenders typically refer to credit references to assess your creditworthiness and make informed decisions regarding loan approvals, including applicable interest rates and credit limits. Below are the three types of credit references in the Philippines:

• A credit report is a detailed summary of your credit history. It encompasses essential credit information, such as loan repayment history, credit utilization, and outstanding debts. Lenders use this reference for a comprehensive view of your financial behavior, allowing them to gauge risk and make lending decisions accordingly.
• Asset documentation is a credit reference type that includes records and proof of owned assets—real estate properties, vehicles, investments, etc. This document validates your financial stability and capacity to repay debts, significantly influencing lending decisions and terms.
• Personal character references include testimonials or endorsements from people who can vouch for your integrity, reliability, and financial responsibility. Your character references may not be directly related to financial transactions, but they can bolster your credibility and trustworthiness in the lenders' eyes.

4 Reasons You Need a Credit Reference

One cannot overstate the importance of having a solid credit reference in the Philippines. Here's why credit information from these references is essential to managing your finances:

1. Loan approval
   It's standard practice for lenders to scrutinize your credit reference when assessing creditworthiness for loans. Whether it's a mortgage, car, or personal loan, a credit reference can increase your chances of approval with favorable terms—especially if your history of timely payments shows responsible financial behavior.
2. Rental property application
   Typically, landlords rely on credit references to evaluate prospective tenants' financial reliability. A positive credit reference demonstrates your ability to meet lease payments consistently and makes you a more attractive candidate for rental properties.
3. Credit card applications and approvals
   Apart from loan approvals, credit references can help credit card issuers determine eligibility and limits. Favorable credit references reflect responsible usage and repayment habits, increasing your chances of obtaining approvals with competitive terms and rewards.
4. Employment background checks
   Some employers conduct background checks that include reviewing applicants' credit references, and having strong credit references can enhance your employment prospects. Credit references that convey how well you value financial responsibility and integrity can also highlight your compatibility with an organization.

6 Best Practices to Maintain a Positive Credit Reference

Generally, a positive credit reference is essential in pursuing financial stability and credibility. Consider following these best practices to help enhance your credit profile and secure favorable outcomes in your financial endeavors.

1. Be consistently aware of your credit score
   Since credit score is a barometer of your financial health, influencing lending decisions and interest rates, you should be proactive in monitoring it. Reputable credit bureaus or financial apps let you stay on top of changes to your credit score. Promptly address any issues like erroneous entries to maintain a favorable credit reference.
2. Select only the most reputable reference to enhance your credit profile
   When choosing references to include in your credit profile, prioritize well-established financial institutions, reputable landlords with positive rental history records, and employers with a solid reputation for professionalism. Their references can lend credibility to your financial profile, instilling confidence in lenders and increasing your chances of credit decisions swaying your way.
3. Don't overuse a reference
   For most, it's tempting to rely on a single reference that portrays you in a positive light. However, overusing one can diminish its impact and credibility. Fortunately, diversifying your references can showcase various aspects of your financial responsibility and stability.
   
   Ideally, you use 2 or 3 credit references in the Philippines—a combination of lenders, landlords, employers, and other credible entities—to provide a comprehensive and well-rounded overview of your creditworthiness.
4. Utilize your references to justify financial history details
   Your credit references can provide context and explanations in situations where your financial history contains gaps or discrepancies.
   
   Say you've experienced economic hardship due to medical expenses or job loss. You could work with the concerned parties to overcome these challenges and demonstrate commitment to your obligations. The goal is to ease the worries of credit companies when evaluating your financial profile.
5. Use references when requesting reconsideration
   Certain situations will occur when a credit decision doesn't align with your expectations. When that happens, you can leverage your references during the reconsideration process. Getting your credit references' endorsements can work in your favor, from seeking a higher credit limit to appealing a rejected loan application.
6. Maintain consistent employment
   On top of providing a stable source of income, sustained employment enhances your credit reference. Here, employers can vouch for your reliability, consistency, and financial stability, reinforcing your creditworthiness. Long-term regular employment strengthens your credit profile and increases your chances of securing favorable financial opportunities.

Elevate Your Financial Profile with a Positive Credit Reference

Cultivating a positive credit reference in the Philippines can be one of the best strategies for empowering yourself financially. Since different types of credit references provide unique benefits, it helps to practice the steps that best align with your financial objectives.

When it comes to financial well-being, RCBC Credit's credit cards have advanced budget management features. These functionalities are helpful in managing your spending responsibly and making timely payments so you can secure a positive credit reference. Ultimately, you can have a smooth financial journey with the tools that RCBC Credit offers.

Apply for RCBC Credit Cards today.