There are a number of benefits you can reap from having a high credit score, especially if you intend to take out a loan from banks and other financial institutions in the future. These firms are keen to lend you money if you have maintained a good credit score. Aside from fast approval, you will also have lower interest rates.
A poor score, on the other hand, does not guarantee quick approval, even when applying for a home loan or credit card. If you do not know how to improve your score, here is your guide to improving your financial standing.
What are the factors that affect your credit score
1. Recent Credit
This is the amount of credit you owed or used on accounts.
2. Utilization pattern
Another factor that lenders are taking into consideration is the period of time you have applied for new credit. If they see that you have applied from another credit facility over a short period of time, then it might affect your chance of getting your application approved.
3. Account Delinquency Data
Delinquency or late payment will reflect on your loan accounts and will have a serious impact on your score.
4. Credit Account History
Banks or moneylenders will favor consumers with long-established credit history because they are perceived to be more reliable in terms of repaying the loan than those who have limited or no history at all. Accounts that show prompt payment history can also boost your credit score.
Take note that only the Credit Bureau (Singapore) and other MAS-approved institutions participating in Credit Bureau (Singapore) can have access to a consumer’s credit report. The purpose of such access is restricted to the assessment of the credit-worthiness of the consumers, and further disclosure to any other person is prohibited.
5. Available Credit
This is the available number of accounts whether open or active, for credit.
6. Inquiry Activity
This is the number of recent application inquiries made as reflected in your report.
|Score Range||Risk Grade||Probability of Default|
|1911 – 2000||AA||0.00%||0.27%|
|1844 – 1910||BB||0.27%||0.67%|
|1825 – 1843||CC||0.67%||0.88%|
|1813 – 1824||DD||0.88%||1.03%|
|1782 – 1812||EE||1.03%||1.58%|
|1755 – 1781||FF||1.58%||2.28%|
|1724 – 1754||GG||2.28%||3.46%|
|1000 – 1723||HH||3.46%||100.00%|
Image Source: Credit Bureau Singapore
Why does credit score matter
Most banks and moneylenders are not particular with your grade if your loan is $500 or below. However, for loans exceeding this amount, your score will play a major role in determining your loan quantum or the amount these financial institutions, such as banks and lenders, are willing to approve. While some countries give high-interest rates for low credit scores, moneylenders in Singapore will either give you a smaller loan or reject your application.
Read here to know the Ultimate Guide about Licensed Money Lender in Singapore.
A healthy score will give you greater assurance of borrowing for a house, education, a car loan, or even starting a business. Even when you apply for a job, a prospective employer will check your credit and will even turn you down if you have bad credit.
Can you improve credit score & how long does it take?
Although it might take some time, the good news is that you can still fix your credit score. More often than not, credit repair takes around one to two years.
Ways to Repair your Credit Score
Having a high credit score might be harder than it sounds, but it takes a disciplined approach to maximize your rating. A low credit score gives you limited options, especially if you are planning to take a loan anytime soon.
This is why you have to maintain healthy financial habits as part of building a credit score. Consistent adherence to basic rules will yield positive results.
1. Repay loans on time
Expect your credit score to drop once you receive a second or third payment reminder. Your credit report will be affected whether or not the bank waves your late payment fees. If you have credit cards, be sure to settle at least the minimum amount in a timely manner and do not wait for the next billing cycle of the credit cards to end.
It is also wise if you have a diary of all the repayment dates so you can stay committed. In the event you are unable to pay a loan installment on the agreed deadline, be sure to inform the financial institution before the due date so it will not incur penalties or hurt your credit scoring. Once your payment delays are beyond 30 days, you will be under the delinquent category and this category could impact your credit rating.
Loan Advisor recommends repaying credit card bills in full each month to avoid interest repayments. If you have missed payments on personal installment loans or mortgages, be sure to inform your bank ahead of time. You can also speak with a credit counselor so you will know your options on debt restructuring or repayment schemes to lessen the credit report damage.
2. Avoid making multiple loan inquiries within a short span of time
Kick the habit of making multiple loan applications within a short period of time because lenders could tag you as credit hungry. If you are in debt or have just been retrenched, you can find yourself into this kind of financial situation. As much as possible, try to spread out your loan applications.
Loan Advisor will help you find a cheaper loan with reasonable rates. You can use a comparison tool so you will know what each moneylender offers. Do not fall into the temptation of multiple inquiries because they can seriously affect your credit rating.
3. Limit number of open credit facilities
It can be tempting to have more than four or five credit facilities such as credit cards, personal loans, and personal lines of credit. However, holding more than six cards or credit lines can cause missed payments once you get confused by the billing cycles. Be sure to close the ones that you are no longer using so you do not have to pay for the annual fee.
If you have personal lines of credit, there is no reason for you to have more than one. Once you have found a credit line with a low-interest rate, be sure to close your current one before you switch to the cheaper option.
When buying a property or a car, you might be tempted to borrow from multiple lenders so you can raise the money. However, having several lenders can be such a dangerous tactic because forgetting one payment can have a rippling effect on your credit score. A sensible approach would be to limit the number of moneylenders that you borrow money from so it will be easier for you to remember repayment due dates.
4. Meet short-term loan repayments to repair damaged credit report
The easiest way you can recover your credit score is to settle small or short-term loans in full. If you have borrowed $1000 or less, making timely and full repayments goes a long way. For a credit grade of B or below, repair your credit score a few years before you apply for another loan. Doing this can make wonders on your credit report once you send in your loan application.
Keep an eye on the past 12 months of your credit history because these are used for calculating your scores. The history includes both defaulted and closed accounts so a good credit management habit should be put in place. A credit repair might take some time, but being disciplined and patient can help you improve your credit score.
Loan Advisor, a loan comparison site in Singapore, helps you make a smarter and informed financial decisions. Aside from having a comparison data that keep consumers educated on financial matters, they will also do the legwork for you by comparing all loan offers and placing them in one site so you do not have to do the research yourself. With access to bias-free reviews, you will be able to ensure that your credit score improves in the process.