How to Calculate Credit Scores (And The Factors That Influence Them)

Banks and lending companies base your creditworthiness on credit scores. A credit score in the Philippines is a three-digit number that reflects a person’s creditworthiness based on their borrowing and repayment history. 

Lending companies use credit scores to assess whether an applicant is likely to repay a loan on time. Think of it as your “trust rating.” These scores help lenders determine loan approval, interest rates, and credit limits, reducing the risk of default.

With a trustworthy track record, financial institutions will let you take out mortgages and loans and qualify for credit cards. These ratings matter to financial institutions. It helps them avoid high-risk borrowers who are likely to default which may lead to revenue loss for their business. 

But how do you calculate your credit score, and what regulatory bodies are responsible for determining an individual’s credit score? In this article, we’ll answer some of the most pressing questions about credit score calculations both in traditional and alternative credit scoring. 

If you’re wondering how to compute your credit score and what it means for you, we’ve got you covered.

How Are Credit Scores Calculated in Traditional Credit Scoring?

How is a credit score calculated?

Financial institutions and credit companies mostly rely on traditional credit scoring, a system that measures a person’s financial credibility using a scoring range of 300 to 850. 

But why are credit scores important in traditional banking? Mainly because traditional credit score calculations dictate your chances of getting approved for loans and credit applications. The lower your score, the smaller your chances of getting approved for a new line of credit

What is a good credit rating, you ask? Generally, a credit score in the range of 700 to 759 is considered good, indicating that the individual is financially trustworthy. Scores from 650 to 699 are regarded as fair or good but not excellent, while scores below 650 are considered poor, and scores below 600 are classified as bad.

In traditional finance, calculating credit scores are highly dependent on a person’s credit background and banking history. Some of the factors that play in calculating your credit score include the following:

Payment history

Whether we’re talking about monthly credit dues or loan payments, your payment history works as a consolidation of your payment background. If you don’t pay your dues on time or have a history of payment delinquency, financial institutions may calculate a poor credit score. This lowers your chance of getting approved for a loan. 

Credit types

Credit history in the Philippines may include a mix of loans and credit. Traditional credit scoring looks at your ability to manage your finances and repay loans even when these overlap. “Revolving” and “Installment” are two types of credit accounts that are commonly included in credit scores.

Revolving credit refers to a model familiar to credit card users. Creditors are given a credit limit which refreshes as debts are paid off. Installment, as employed in mortgages, personal loans, and auto loans, refers to a loan scheme that requires a set number of payments within a specific period.

Total loaned amount

The third factor in a credit score computation is the total credit amount that you have under your name. This includes credit that you’ve already paid and the ones that you are still in the process of paying off. The higher your amount of credit across all platforms is, the lower your credit score might be. Financial institutions are less likely to approve a credit line to people who are already managing multiple loans.

Ongoing credit applications

Lastly, traditional credit scores also consider other pending credit applications that you may have. In some cases, applying for multiple credit accounts may be detrimental to your credit score.

If you’re curious about how to calculate your credit score by yourself, the Credit Information Corporation (CIC) is the only legitimate way to know your actual score.

The Credit Information Corporation functions as the Philippines’ central registry for credit data. Banks and credit companies work with the CIC by sending their customers’ credit history and letting the CIC consolidate the financial data into comprehensible reports. Once the reports are submitted, financial institutions will then screen and calculate credit scores using their own credit scoring system. Since financial institutions have unique loan appetites, your credit scores will not be the same in every application.

However, if you want a rough estimate of your credit score computation, consider these factors:

• Do you pay your bills and loans on time? Missed or late payments lower your score.
• Limit new loan applications, as too many at once raise red flags.
• Diversify credit types. Having different loan types helps.
• Manage your balances and keep your total loaned amount low.
• Keep yourself informed and don’t fall for common credit score myths.

With these factors, you might be wondering how traditional credit scoring works for unbanked people or citizens who choose non-traditional or informal types of credit. Due to the lack of information on the underbanked’s financial behavior, credit scoring institutions are unable to accurately calculate credit scores and predict a person’s creditworthiness. The dependence on the traditional equation leaves many underbanked and unbanked unable to apply for credit and achieve financial independence.

How Are Credit Scores Calculated in Alternative Credit Scoring Through Telco Data?

More and more banks are becoming aware of the plight of the underbanked. Some institutions have started to supplement their traditional credit scoring models with alternative types of credit scoring as alternative credit data is much more accessible to Filipinos. 

Telco Credit Scoring, for example, offers a more inclusive approach to measuring a person’s creditworthiness. It calculates financial reliability through telco data sources like SMS behavior, mobile data usage, voice call durations, SIM card age, and top-up patterns. Even if you don’t have a credit history or a bank account, your mobile usage can help with your loan applications.

FinScore calculates credit scores by tapping into unique insights based on more than 400 variables in telco data. In the Philippines, FinScore is one of the leading proponents of alternative credit scoring, offering Philippine banking institutions better data for a more inclusive screening process for credit applications. FinScore calculates credit scores through advanced analytics and AI/ML, including Gradient Boosting and Neural Networks. Through partnerships with both leading telecommunication companies in the country, this alternative credit scoring company determines your creditworthiness based on how much and how well you utilize your SIM card.

With this technology, banks and other financial institutions can serve the underbanked and unbanked populations while improving their internal fraud detection and identity tracking through sources like geo-location, contact numbers, and telco history. 

This is just one of the many advantages of alternative credit scoring. Lenders can safely approve more people, grow their customer base, and reduce defaults. With richer, real-time insights, lenders make smarter decisions while reaching untapped markets—balancing profitability with inclusion.

How Can You Calculate Your Own Credit Score?

There is no universal equation or formula used to calculate your chances of getting approved for a loan. Financial institutions and lending companies have their own unique credit scoring systems.

However, you can get a credit report from CIC. This will include important information about your identification, loan certificates, and payment track records. Get your CIC credit report through the CIC website or by visiting the CIC office in Makati City, Philippines.

Alternative Credit Scoring for Better Credit Reach

When financial institutions calculate credit scores, traditional data offers only a limited glimpse of a person’s financial capability. Filipinos with no access to formal banking continue to be barred from credit sources. However, with credit scoring through alternative credit data, banks can easily extend their services to the underbanked and calculate their credit scores by using real-time data from the country’s major telecommunication providers.

As the Philippines’ leading alternative credit scoring company, FinScore empowers individuals and businesses to either improve their credit scores or to serve a bigger market with alternative credit scoring. Message us for a demo.