A credit score is like a health check for your finances. It’s a four-digit number based on your payment history on your credit card bills, loan accounts, and other debts. Banks and financial institutions use it to evaluate your risk as a borrower.
There will come a time where taking a bank loan becomes necessary. For instance, you may need to get a home loan, car loan, or business loan. A high credit score will help you easily qualify for loans. You will be eligible for a higher loan amount, enjoy lower interest rates, and get approved quickly.
On the other hand, a poor credit score will make it difficult to even get a credit card. Worried about improving your credit score? Here’s a guide to learn how to improve and maintain your credit score Singapore.
Getting a high credit score isn’t too difficult as long as you remain disciplined in paying your bills on time. It requires effort and proper financial budgeting. However, if you have a low score and want to quickly raise it to take a loan, you might have a hard time.
That said, it’s crucial to practice healthy financial habits. In doing so, you can build a good credit score. Here are a few basic rules to help you get the best results:
Do not delay payments. Even when you pay the late payment fees, your credit score will still take a hit. For example, if you delay payment for more than 30 days, you will be put in the delinquent category. This will have a negative impact on your credit score in the long run.
So how do you improve or maintain a high credit score?
- For credit cards: Ideally, you should pay your credit card bills in full every month. Doing so will also help you save on interest repayments. Additionally, your credit card may also reward you in different ways, such as earning cashback, reward points, or air miles.
But if this isn’t possible, you can repay at least the minimum amount before the billing cycle ends.
- For loans: If you have outstanding debt, like a mortgage or personal loans, then make sure to follow the repayment schedule. If you think you’re going to miss payments, inform your bank early.
Another option is to talk to a credit counselor and ask if the bank will work out a repayment scheme that will do less damage to your credit rating.
Did you know that an enquiry is filed every time you apply for a loan?
A high number of enquiries within a short span will lower your credit score. Banks and financial institutions may identify you as “credit hungry”. It sends out a signal that you’re taking on a lot of debt – typical behavior of someone in financial difficulty.
That said, minimize the number of loan enquiries. Spread out your loan applications. If you’re looking for the best loan terms, you can use a loan comparison tool. This way, you can compare and find the loan with the lowest interest rate.
Most importantly, avoid applying for multiple loans all at once.
If you have more than four or five open credit facilities, financial institutions may suspect that you’re over-extending yourself.
In fact, you will have a hard time keeping track of your billing cycles and miss payments. This can damage your credit score. Imagine trying to keep track of and managing multiple bills from different lenders!
So limit your open credit facilities. For one, close off any credit card you no longer use. This will help you save up on the annual fee. Additionally, if you find a personal line of credit with a cheaper interest rate, close your current credit line and make the switch.
Avoid opening multiple credit accounts to have a better credit mix. This will not improve your credit score. In fact, opening an unnecessary line of credit may tempt you to overspend and accumulate debt.
So keep your open credit accounts to a minimum to help remove excess liability and manage your finances better. Best of all, this will make it easier to maintain your credit rating.
As previously mentioned, late payments will lower your credit rating. It signals banks and other institutions that you’re spending beyond your limit. And if you completely fail to pay off your debt, it will appear on your credit history report indefinitely.
Account delinquency will make it impossible to ever get a credit card, line of credit, or home loan. If you can’t make a repayment call your bank. Or seek credit counselling and have your debt restructured. Another option is to file for bankruptcy.
These options are better than defaulting on your loans. On top of that, defaulting can lead to legal charges, especially if you have the money but simply refuse to make payments.
Another way to repair a bad credit grade is to settle in full any short-term or small loans. In doing so, the bureau will see that you are making repayments on time and in full.
For example, if you currently have a B or under credit rating, start doing this for a year or two before applying for loans. This could boost your credit rating to AA.
The length of your credit history is also one of the factors that can affect your credit score. Banks and other lenders prefer borrowers with a longer credit history. However, you need to have a history of punctual payments to get a good credit score. So aim to have a history of prompt debt payments to support your credit rating.
Your credit bureau report lists your credit payment history from different lenders. In Singapore, you will receive a credit rating based on your credit history. This evaluation is done by independent rating companies that assess consumers’ creditworthiness.
There are two institutions that provide credit scores in Singapore: the Credit Bureau Singapore (CBS) and the Moneylenders Credit Bureau (MLCB). Any Singaporean can get a credit report from the Credit Bureau for a fee of $6.
|Rating||Score||Probability of Default|
|AA||1911 – 2000||between <= 0.27%|
|BB||1844 – 1910||between 0.27% to 0.67%|
|CC||1825 – 1843||between 0.67% to 0.88%|
|DD||1813 – 1824||between 0.88% to 1.03%|
|EE||1782 – 1812||between 1.03% to 1.58%|
|FF||1755 – 1781||between 1.58% to 2.28%|
|GG||1724 – 1754||between 2.28% to 3.48%|
|HH||1000 – 1723||between >= 3.48%|
CBS applies an algorithm to your available credit data in order to calculate credit scores. That said, your credit rating is not a static number. It will change depending on the new activities on your credit data.
The highest credit rating you can attain is an AA risk grade. Grades B or C indicate delinquency or late repayments. A credit rating of D or lower is usually caused by defaults.
- Available credit: This is the number of open and active accounts available for credit.
- Recent credit: Have you applied for new credit? It will be reflected in your credit report.
- Enquiry activity: An enquiry is filed each time you apply for loans.
- Utilization pattern: This tracks how often you’ve been using the loan facility. Higher utilization indicates more debt which could reduce your score.
- Account delinquency data: This factor indicates how reliable you are as a borrower. Delinquency behaviors will be recorded by the CBS.
- Credit account history: Having a history of punctual and full repayments will improve your credit rating.
Unfortunately, you can’t precisely predict how soon you can improve your credit score. It may take several weeks for changes to reflect on your credit report. So make sure to practice good financial habits.
A healthy credit score signals lenders that you are a responsible borrower. On the other hand, a bad credit rating will lead to challenges when you want to take out any type of loan. In fact, it will also affect your HDB loan application as well.
So it’s best to start improving your credit rating as early as possible. Don’t wait till you need to take out a loan before you start practicing good financial habits. You can start by paying off your outstanding debt. For instance, you can consolidate your debt and take out a personal loan to pay it off.
A licensed moneylender will be able to provide you with fast cash. Their eligibility requirements and processing are less stringent than banks. Bugis Credit is a reliable licensed moneylender in Singapore that offers 5-star quality personal loans services.