How Good Credit Access Enables Better Financial Inclusion

With many Millennials and Gen Z consumers planning to apply for credit, the latest TransUnion Consumer Pulse Survey shows 48% of consumers believe alternative data can improve access to financial services.

Credit is a key component of consumer personal finance. Based on the promise to pay later, having access to credit helps people get the things they need now. Working to improve your credit score helps ensure people can qualify for loans when they need them. However, in the Philippines, the work continues for more Filipinos across the country to enjoy sufficient access to credit and other financial services.

The latest TransUnion Consumer Pulse Survey shows almost half (48%) of Filipinos believe alternative data can improve access to financial services. Spanning information gathered from sources such as telco data, rental payments, and buy now pay later loans – it can help develop a credit history for people without traditional lending products.

The survey studied consumer attitudes regarding household budgets, spending, and debt. Findings showed that 94% of respondents agreed that access to credit and lending products are important to achieve financial goals. However, only 35% reported having sufficient access to credit. With additional findings showing more Millennials (born 1980-1994 – 49%) and Gen Z (born 1995-2004 – 50%) planning to apply for credit within the next year, and 50% of all respondents who considered applying for new credit or refinancing existing credit ultimately deciding not to. The top two reasons for abandoning their plans were the high cost of credit (32%) and finding an alternative funding source (32%).

Understanding Filipino perceptions towards lending

A preference for taking loans from informal sources was noted in a 2019 study by the Bangko Sentral ng Pilipinas on financial inclusion. Among adults with outstanding loans (33%), almost half of the respondents (44%) took them from relatives and informal lenders (10%) . When asked on the perceptions on the ease of applying for loans from formal financial institutions, 48% of respondents perceive it to be difficult, with 58% of them citing a lack of document required as the top reason for the difficulty.

Empowering financial inclusion through alternative data

To improve access to formal financial services such as loans and credit for more people, lending institutions must have a better understanding of who their prospective customers are. With new-to-credit consumers constrained by the lack of available credit information on them, TransUnion makes trust possible by exploring alternative data such as mobile telco data to help score consumers with little to no credit history – enabling more people to be visible in the formal financial system. Together with traditional data, these sources are consolidated to provide institutions with information and insights to help them better understand an individual’s creditworthiness.

Improved customer insights and loan pricing are some of the key benefits of alternative data usage for credit scoring – especially for Filipinos and small businesses with little to no formal credit history. Despite an uptick in the Philippine economy coming from the tail end of last year, continuing to address how Filipinos view credit is a major step in fostering an inclusive financial ecosystem for more people across the country.

Alongside improving financial education with a focus on personal financial management, the availability of consolidated credit information for both consumers and businesses is a step towards changing the perception of credit – turning the idea of utang from bad debt to economic opportunities for more people. Whether to secure the funds to purchase a car, to help finance the purchase of a home, or to raise capital to start a business, good credit enables further chances for Filipinos to enjoy a better quality of life.

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