A high credit score can provide you with an immense range of benefits. Just to list a few examples, banks and other financial institutions will be keen to lend to you when you have a great credit score. This means that you will be eligible for a greater amount of loan, get it more quickly, and pay lower interest rates. On the other hand, if you have a poor credit score, you could find it difficult to even get a credit card or a home loan. It is also likely that the large banks would refuse to finance you flat out, which means you have to borrow from more expensive sources like pawn shops or licensed moneylenders.
If you are worried about how to improve your maintain your credit score, you can read our guide below to learn how the credit score system works in SIngapore, and what you can do to improve your financial standing in the country.
How Credit Scoring System Works in Singapore
The Monetary Authority of Singapore has authorised only two credit bureaus to issue credit reports and credit scores. These are:
- Credit Bureau of Singapore
- DP Credit Bureau
Both these institutions track various aspects of your financial history and compile a report containing details about the loans that you have taken, your repayment track record, and even the number and type of inquiries that you have made to lenders. Below picture is meant to display how a number of different factors go into consideration for a person's credit score. The specific percentages are not meant to be representative of actual practice by the bureaus mentioned above.
Based on these details, the Credit Bureau of Singapore and DP Credit Bureau issue a credit score for each individual. This is a number that gives prospective lenders an idea about the likelihood of you repaying your debt on time. The score issued by the Credit Bureau of Singapore ranges from 1,000 to 2,000 with a higher score signifying a lower lending risk for the financial institution. Similarly, DP Credit Bureau also issues a credit score, which ranges from 0 to 781.
How to Maximise Your Credit Score
Contrary to what some people may believe, it is not very difficult to get a high credit score. However, you need to have a disciplined approach over the long term. If you have a low score and want to raise it quickly because you need to take a loan, it is likely that you will be disappointed. Read this to understand more about credit reports and credit scores.
Therefore, it is crucial that you keep a healthy financial habits in order to build a good credit score so that you can get appropriate funding when you need it. To do so,a consistent adherence to a few basic rules will give you the best results.
- Pay all your dues on time – Some credit cardholders think that it is quite alright to delay payments as long as the late payment fees are also paid. But this is not true. A delay beyond 30 days will put you in the delinquent category and over a period of time, this will negatively impact your credit score.
To avoid making this make, try keeping a diary of all the dates on which you have repayment commitments. If you cannot pay a loan instalment on time, you should inform the financial institution before the date the payment is due.
- Use your credit cards wisely – It is very easy to get carried away when you pay for your shopping with a credit card. The due date for payment may still be several weeks away and you can always pay the minimum amount and defer the remaining payment. But this strategy will backfire almost every single time. More than likely, you will end up accumulating a large amount of credit card debt and consequently pay significant amounts as interest.
Instead of using your credit card in this manner, it is preferable to use it as a payment instrument. When you receive your monthly statement, you should pay off the entire amount. As long as you do this, your credit card can reward you in many ways by earning substantial sums as cashback or air miles.
Limit the number of lenders that you borrow from – Many Singaporeans borrow to raise the money for buying their homes. Car loans are also common. In addition to these, you may hold two or three or even more credit cards or personal loans. Before you know it, you will be in a position where you have to keep track of several lenders. This is a dangerous place to be in, because even forgetting to pay one payment can damage your credit score. Imagine trying to keep a track of and manage multiple bills from multiple lenders! The sensible approach is to limit the number of lenders that you borrow from, to the minimum possible, so that it's easier for your mind.
Keep loan application inquiries to a minimum – Making multiple inquiries for a loan or a new credit card can lower your credit score. Why should the credit bureau penalise you just for contacting a lender from whom you do not actually borrow any money? When you contact several banks or financial institutions within a matter of days, the impression that you create is that you are desperate for funds. Although your intention may only be to get the best deal for yourself, the signal that you send out is completely different. Limiting your inquiries to the bare minimum will help in maintaining your credit score. In order to do so, you can check out our various guides on the best financial products in Singapore so you can make the most informed decision possible.
Track your borrowing carefully
What impact does a late payment or the sudden acquisition of multiple credit cards have on your credit score? It is not possible to know how many points your score will fall for each of these activities. This is because the credit bureaus compute your score on the basis of a proprietary algorithm, the details of which are not in the public domain.
However, keeping a close tab on each of the points described above will ensure that you continue to maintain your credit score at a high level. It will then be easier for you to get a loan or a credit card application approved by a bank. You can also pick up some useful advice on personal loans and home loans by reading Best Personal Loans and Best Home Loans.