Credit Record Issues from Character References in Loan Applications in the Philippines

Introduction

In Philippine lending practice, particularly for personal loans, salary loans, housing loans, and credit card applications, banks and financial institutions almost invariably require applicants to provide two to three “character references”—persons who are not relatives and who can supposedly vouch for the applicant’s moral character and reliability. A persistent and widespread belief exists among Filipino borrowers and potential references that if the principal borrower defaults or becomes delinquent, the character references will suffer negative marks on their own credit records. This belief has caused many professionals and employees to refuse requests to act as character references, fearing that it will impair their future loan applications or increase their borrowing costs.

This article comprehensively examines the legal and practical reality of this issue under Philippine law, regulations of the Bangko Sentral ng Pilipinas (BSP), and the operational rules of the Credit Information Corporation (CIC).

Legal Nature of Character References

A character reference in a Philippine loan application is not a co-borrower, co-maker, surety, or guarantor. The reference assumes no financial obligation whatsoever under the loan contract.

The loan agreement is executed only between the lender and the principal borrower (and any co-borrower or guarantor, if applicable). The character reference does not sign the promissory note, the disclosure statement, or any document that creates joint and several liability. Consequently:

• The reference cannot be sued for payment if the borrower defaults.
• The reference has no obligation to pay under the Civil Code provisions on suretyship (Articles 2047–2084) or guaranty.
• The reference is not covered by Republic Act No. 3765 (Truth in Lending Act) or Republic Act No. 7394 (Consumer Act) as a party to the credit transaction.

In short, the character reference is merely a verification contact, not a party to the credit contract.

The Credit Information Corporation (CIC) and Negative Credit Information

The Credit Information Corporation, established under Republic Act No. 9510 (Credit Information System Act of 2008), is the sole public credit registry in the Philippines. All banks, quasi-banks, financing companies, lending companies, and other submitting entities regulated by the BSP, SEC, or Cooperative Development Authority are required to submit both basic credit data and negative credit information to the CIC.

Negative credit information consists exclusively of:

1. Defaults, delinquencies, foreclosures, or unlawful use of credit facilities by the borrower or co-borrower.
2. Adverse judgments arising from unpaid credit obligations.
3. Bounced checks issued in payment of credit obligations.

The CIC Manual of Regulations expressly states that only data pertaining to the subject (the person whose credit report is being requested) and his/her own credit accounts are reflected as positive or negative information. Information about character references is treated as non-scoring, ancillary data.

Does Being a Character Reference Appear on Your Credit Report?

Yes—but only as a neutral, non-scoring entry.

When a submitting entity uploads credit data on a loan, it may include the names, addresses, and contact numbers of character references provided by the borrower. This information appears in the “Reference Information” or “Other Information” section of the principal borrower’s credit report.

If a character reference later requests his or her own CIC report, the system will show—in that person’s own report—that he/she was listed as a character reference for a particular loan account of Mr./Ms. X with ABC Bank.

Crucially:

• The status (current or delinquent) of the principal borrower’s loan is displayed alongside the reference entry.
• This information does not form part of the reference’s credit score.
• It does not constitute negative credit information against the reference.
• The CIC’s credit scoring models (including those used by banks) completely disregard reference entries when computing the score.

Official statements from the CIC (2016, 2019, and 2022) and the BSP have repeatedly clarified that being a character reference, even for a seriously delinquent or written-off loan, does not and cannot adversely affect one’s credit standing.

Origin and Persistence of the Myth

The myth appears to have originated from several sources:

1. Early TransUnion/CIBI reports (pre-CIC standardization) sometimes displayed reference information in a way that visually associated it with negative accounts, causing misinterpretation.
2. Some bank credit investigators or collectors aggressively call or visit references when a borrower becomes delinquent, creating the impression that the reference is “involved.”
3. Anecdotal cases where a person who previously served as reference was later denied a loan, leading to the erroneous conclusion of causation (when the real reason was usually the applicant’s own credit history or debt-to-income ratio).
4. Misinformed bank personnel or loan agents who themselves perpetuate the myth to pressure applicants into providing references.

Potential Indirect or Collateral Consequences (The Only Real Risks)

While there is zero direct impact on the credit record, the following practical risks do exist:

1. Harassment by collectors
   Some banks and especially aggressive collection agencies contact references repeatedly, send demand letters, or even visit workplaces. This is legally questionable under Republic Act No. 9510, Section 10 (prohibition on disclosure of credit information to unauthorized persons) and Republic Act No. 10173 (Data Privacy Act of 2012), Section 16 (rights of data subjects). References who receive such harassment may file complaints with the BSP Consumer Protection Department or the National Privacy Commission.

2. Internal bank “blacklisting” or policy overlays
   A few banks maintain internal policies (not reflected in CIC) that treat persons who have been references for multiple delinquent accounts as higher-risk. This is extremely rare and has never been documented publicly, but it remains a theoretical possibility.

3. Employer perception
   When collectors contact references at their place of employment, it may create embarrassment or raise questions from HR or superiors.

Best Practices for Persons Asked to Become Character References

1. Ask for a copy of the loan application form or character reference portion to confirm that you are listed only as “character reference” and not as co-maker or guarantor.
2. Politely decline if you have any doubt about the borrower’s ability or intention to pay.
3. Inform the borrower in writing (text or e-mail is sufficient) that you are willing to confirm only your personal knowledge of their character and employment, and that you will not accept responsibility for the loan.
4. If harassed by collectors, immediately send a written demand to the lender citing RA 9510 and RA 10173, and copy the BSP Consumer Protection Department (consumercomplaints@bsp.gov.ph) and the National Privacy Commission.

Conclusion

Under Philippine law and the operational rules of the Credit Information Corporation, serving as a character reference in a loan application does not and cannot result in any negative credit information being recorded against the reference, regardless of whether the principal borrower becomes delinquent, defaults, or has the loan written off.

The widespread belief to the contrary is a myth that has been repeatedly debunked by the CIC, the BSP, and major banks since at least 2016.

The only real risks are potential harassment by collectors and minor inconvenience—risks that can be managed through awareness and assertion of one’s rights under the Data Privacy Act and the Credit Information System Act.

Professionals and employees may therefore accept requests to serve as character references with confidence that their own credit records will remain completely unaffected.