Personal Loans

Why Your Credit Score Is Holding You Back & How to Fix It

Having a bad credit score can be frustrating and costly. Learn how your credit score impacts your daily life, and how you can improve your score over time.

Your credit score may seem like a distant and abstract number that doesn't affect you very often. In fact, credit scores have a significant impact on your lifestyle. Your home, your vacations, even your dating life can be negatively impacted by a bad credit score.

Is My Credit Score Good?

Credit scores, which are managed by the Credit Bureau (Singapore) Pte Ltd (CBS), are used by financial institutions as a benchmarks to determine the reliability of an individual to repay his or her debts. This four-digit number that ranges from 1,000 to 2,000 (AA rating at 2,000 being the best), is a consolidation of an individual’s credit history pooled together and aggregated across different banks, finance companies and other sources, such as bankruptcy records. As such, financial institutions rely on these credit scores to determine if they are willing to offer products to applicants.

CBS Credit Score Table

Why Is It Important to Have a Good Credit Score

Why is it important to keep your credit score high? First, a healthy credit score can make it easier to apply for credit cards and loans. While it's not the only factor that banks consider (TDSR and income are also key indicators), a good credit score makes it more likely that you'll be approved for a credit card or loan.

Additionally, a strong credit score can provide you with more negotiation power for higher borrowing limits and even better interest rates. For example, If you need a loan to purchase a car or a home, a good credit score will increase the number of financial institutions that are willing to consider your applications.

Finally, even if you have no need for a loan or credit card, it is still important to maintain a good credit rating because many prudent employers and landlords conduct stringent require credit checks. If you are bankrupt or have demonstrated poor financial responsibility, prospective employers and landlords may reject your dream job or flat application.

Therefore, a bad credit score not only impacts your financial life, it can also hurt your daily quality of life. From your home, to your career, surveys have found that even your dating life can benefit from a strong credit history.

How to Fix a Bad Credit Score

If your credit is not as strong as you would like, it is prudent to develop a plan for rebuilding your score. Because your credit score is based in part on your past 12 months of credit repayment history, it is important to establish an on-going track record of timely repayments and more.

Avoid Applying for Too Many Credit Cards

The best credit cards offer great rewards and promotions that make them quite attractive. However, those hoping to repair their credit history should be wary of applying for too many cards. For example, multiple credit card applications may signal to financial institutions that you need more credit and may run the risk of defaulting on your payments. More credit cards may also lead to subconsciously lead overspending and heighten your risk of running up credit card debt. On the other hand, if there are credit cards that are under-utilised or inactive, it will indicate that you are a good credit consumer and as a result, it can positively impact your credit score.

Pay off Bills and Loans Promptly

Paying your bills on time reflects your ability to clear your debts effectively. From a bank's point of view, this is a positive indicator that strengthens an individual’s credit score. Additionally, it is important to avoid late payments, defaults, repossessions or bankruptcy filings, because such records can stay on your credit report for a much longer period. For example, default records can stay on one’s credit report for 3 years upon full or negotiated settlement while bankruptcy data is retained for 5 years from the date of discharge from bankruptcy.

Repay Existing Debt

If you have outstanding loan balances or existing credit card debt, it is possible that it is dragging down your credit score. To make sure you're optimising your credit score, it is worth considering applying for a debt consolidation plan (DCP loan), which gathers all your outstanding unsecured debts (e.g. credit card bills, personal loans) into one single loan that is easier to manage. Alternatively, balance transfer loans work well to transfer your high-interest credit card debt to a loan with a lower interest rate, plus an interest-free period of 3-12 months.

Get a Copy of Your Credit Report

Before you apply for your next loan, it would be wise to get a copy of your credit report from CBS to review your credit scores. The report can provide updated data of your credit status and allow you to rectify any areas that may raise concerns from institutional lenders. You can obtain a copy of your credit report online for S$6.42 or pay S$17.12 at SingPost branches for express, two-hour service. Once you have an idea where you stand, you'll be better prepared to proceed with improving your financial standing.

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