Understanding the Difference Between Good and Bad Credit


Credit can be a powerful tool to help people achieve financial goals. Based on an agreement to pay for goods and services in the future, having access to credit allows people to purchase things now. 

However, there is an important distinction to be made between responsible or ‘good’ credit and unaffordable ‘bad’ credit. 

The difference between good and bad credit

Whether it’s used for purchases that improve one’s quality of life, to handle unexpected bills, or to take advantage of certain perks such as rewards points or special discounts, good credit is credit that a borrower can affordably repay.   

As credit is a tool, there are cases where tools can be misused. Credit becomes bad credit when you use it to take on debt you can’t afford to repay. The longer you go without paying, the more likely you could run into fees, damage your credit score, see interest rise, and possibly face legal issues. By saddling yourself with the responsibility to take care of unaffordable outstanding debts, you run the risk of closing yourself off from better economic opportunities that credit used responsibly can unlock.  

The impact of bad credit  

The repercussions of taking on bad credit can be seen as a possible contributing factor to the negative stigma surrounding credit in the Philippines. In the country, the word credit is synonymous with the Tagalog word “utang” which carries notions of bad debt and financial irresponsibility. 

The recent TransUnion Philippines Credit Perception Index study highlighted how negative stigma has shaped how Filipinos see credit. Findings showed that 58% of Filipinos believe that users of credit products tend to overspend while 55% do not want to be indebted. 

As a result, in lieu of turning to formal financial institutions, there is a high reliance among Filipinos on family, friends, and other informal sources of borrowing. These sources include unregulated “5-6” moneylenders who issue small loans with often high-interest charges over an agreed period, and “sangla-ATM” schemers who require physical ATM cards and a person’s personal identification numbers (PIN) as collateral for loans. Relying on these measures often puts borrowers at huge disadvantages that make it difficult for them to break free from their debts. 

Good and Bad Credit TransUnion

The importance of championing responsible credit use 

While much work remains to be done to fully dispel the negative stigma surrounding credit in the country, more Filipinos are seeing the opportunities that come from having access to credit. Findings from the Q3 2023 TransUnion Philippines Consumer Pulse Study showed that 62% of Filipinos agreed that credit can help them access new opportunities that can lead to a better quality of life (i.e. buying a house, starting a business, financing my education, buying a car) – an increase of four percentage points from findings in Q2 2023. 

Additional results from the study found that 72% of Filipinos agree that credit is widely available and easy to apply for as long as good financial management is demonstrated, an increase of four percentage points from the previous quarter. Asked whether they were comfortable owning credit accounts such as loans and credit cards, 41% of Filipinos expressed being comfortable, an increase of six percentage points from Q2 2023. 

With perceptions changing and with more Filipinos growing accustomed to the ownership of credit products, the formal financial sector must continue to work together on educating Filipinos on responsible credit use and how it can pave the way towards better financial inclusion in the country. 

To help promote responsible credit use, TransUnion Philippines’ credit reporting solutions help people understand and improve their credit status. Checking your credit report can help consumers stay informed of factors affecting their credit score and can help them take action to improve it. This can help people act to improve their credit standing faster.  

Especially for the benefit of New-to-Credit (NTC) consumers constrained by their lack of credit history, alternative data such as telco data serves as a valuable tool for assessing the creditworthiness of consumers. As a global risk information provider, TransUnion Philippines utilizes information and insights derived from alternative data to help lenders identify lower-risk borrowers and provide them with better terms and pricing on credit products and services. This is what it means when TransUnion Philippines uses Information for Good. 

Credit creates opportunities. By highlighting the benefits of good credit and consistently promoting education on the responsible use of credit, it’s possible for more Filipinos to get more out of life. 

Get your TransUnion Philippines Credit Report HERE.

About TransUnion (NYSE: TRU)

TransUnion is a global information and insights company that makes trust possible in the modern economy. We do this by providing an actionable picture of each person so they can be reliably represented in the marketplace. As a result, businesses and consumers can transact with confidence and achieve great things. We call this Information for Good®. TransUnion provides solutions that help create economic opportunity, great experiences, and personal empowerment for hundreds of millions of people in more than 30 countries.

In the Philippines, TransUnion was the first comprehensive private credit reference agency (CRA) and we have helped Filipinos to better understand and manage their personal finances for more than a decade. We serve a range of clients across multiple sectors, including international, national, and rural financial services providers, telecommunications, utilities, FinTech, and retail organizations.


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