The first time many people come across the term “credit score” in Singapore is probably when they’re dealing with credit cards or applying for a loan. For those who are familiar with housing loan jargon and other financing processes, you’ll already know how to maintain a good credit score.
But if you’re new to the world of managing your finances, welcome. We know understanding how to budget and tracking your money can be complicated. But it doesn’t have to be difficult and we’re here to help you out.
So, today’s lesson is on how to maintain a good credit score. If, by reading this article, you’ve realised you bungled it and accidentally #rekted your credit score, no worries. We’ve included some tips on how to fix it!
What Is a Credit Score?
A credit score is a four-digit number based on past payment history on your loan accounts. This is a metric used by lenders to determine how risky you are as a credit applicant based on how likely you are to repay your debts. In Singapore, the Credit Bureau of Singapore and the Experian Credit Bureau issue credit reports and scores.
The exact algorithm to compute credit scores in Singapore is not publicly known, but we do know some factors that are taken into account.
They may look at your credit account history, and scrutinise how promptly you make your payments, the amount owed, and how late your payments were. They may also take into account the number of open or active accounts for credit you have, how recently and how often you applied for new credit.
Singapore Credit Score Table
Here’s a table explaining which risk grade you fall in, as dependent on your credit score.
Source: Credit Bureau
Is Credit Score Important in Singapore?
You might be wondering, “So, why is a credit score important? How does it affect me?”
If you’re buying a new house, renovating your place, or thinking of pursuing further education, you might need help from the bank to finance your goal. Having a good credit score means you’re more likely to get a larger loan and have your application approved.
Want to work in finance? Then all the more you should care about your credit score. Some prospective employers may also turn down applicants with bad credit scores.
Now we understand what a credit score is, let’s jump into the ways you might have accidentally hurt your credit score.
1. You Were Enticed By Deals and Applied for Too Many Credit Cards at Once
Perhaps you came across bank offers or online promotions promising a free Apple watch or cash if you get a credit card. Or your friends say there’s a special deal you just can’t miss. So you sign up, the application goes through and you get your freebie.
All is well and you’re happy plus you have a bunch of shiny new credit cards. What could go wrong?
Let’s say you have seven credit cards. Aside from finding it difficult to snap your wallet shut due to the sheer amount of cards, the larger issue is you now have seven lines of open credit.
You may be more tempted to spend frivolously. When juggling so many cards, you may accidentally miss payments and end up getting penalised. For those who signed up for the freebies, you may forget to cancel and end up forking out the annual fee.
What you can do:
Cancel your credit cards and keep the ones you use. As a general rule of thumb, you should apply for new credit cards only when you need them or if there is a card that truly benefits and suits your spending habits and lifestyle.
Put purchases on older credit cards and pay off your debt monthly. This will improve your credit score as you’ll have a history of making timely credit payments. As much as possible, pay in full and pay on time.
Also, if you had to pick, keep the cards with the largest credit limits. There’s something called a debt-to-credit ratio and it can be helpful to keep it skewed in your favour.
2. You’ve Missed a Bunch of Credit Card Payments
The biggest noob mistake you can make is to miss a payment and let your bill roll over to the next month. You’ve got to hit the minimum payment on a credit card at the very least to avoid late payment fees and other penalties. Even then, paying the minimum payment only is not recommended as you are still charged interest on the balance amount.
When you pay past the due date frequently, you’ll have a string of late payments on your credit history.
What’s worse is you take on more unnecessary debt as the amount snowballs. If you’re on a tight budget, it might be a struggle to keep up with credit card interest rates.
What you can do:
If you missed the monthly credit card payment due to forgetfulness, the fix is easy. Set an alarm or reminder in your calendar to make payment on time. First-timers can call up their bank and appeal the late payment fee. Banks are usually forgiving (just promise and make sure not to do it again).
Sometimes, we fall on hard times and debt is inevitable. For those in a tough spot and who have accrued bad debt, you’ll want to look at how to make your monthly credit card payment more manageable.
You could opt for a balance transfer loan and consolidate your debt into a single account. By taking on a flexible repayment loan over a fixed period of time and transferring your outstanding balance to another bank, you’re buying more time to settle your debt. Interests rates are usually low, and may even be 0%.
Know that the amount you are allowed to borrow depends on your existing credit limit. And it goes without saying that you shouldn’t miss a payment. If you do pick this route, try to prevent your consolidated debt from exceeding 50% of your available credit.
3. You Don’t Think You ‘Need’ Credit Cards So You Have None
At this point, we won’t blame you if you’ve been scared off by our first two points and think, “Bad credit card, bad!” Or you might not see the need to get a credit card at all if you’ve lived this long using only a debit card.
Just like the stance local schools take on the birds and the bees, you might feel it’s better to abstain than to get in bed with potential debt.
However, avoiding credit cards completely means you won’t have a credit history. When you’re lending money, you don’t have any receipts to pull up.
What you can do:
Unless you’re a baller and can afford to pay for a house in cash, you’re probably going to take a mortgage to pay for a home. While not having any credit cards doesn’t damage your credit score, it doesn’t improve it either.
Ideally, you want to be able to show there is activity on your credit report. According to CBS, someone with a long-established credit history is “deemed to be more favourable or a reliable borrower when compared to one who has limited or no credit history.”
The key is protecting yourself against accruing bad debt and exercising moderation. A great way is to think of your credit card as a debit card; don’t spend more than you have. After all, there are perks of using various credit cards such as cashback, redeemable points and/or miles.
Use your cards responsibly and stay safe, kids!
4. You Didn’t Update Your Credit Limit
For those who are financially responsible and great at ‘adulting’, this tip is for you. You might have read the first three points and go, “Pfft! I know better than to make those mistakes.” You already know your credit score is stable.
We’re happy to hear you’re in good standing! But if the last time you checked your credit score was never, you probably missed out on the chance to apply for a higher credit limit.
With a higher credit score, you could be offered a better interest rate. That’s super handy if you’re hoping to apply for a mortgage.
What to do:
Start by checking your credit score. Not sure how? Head over to any SingPost branch, the Credit Bureau office, or CrimsonLogic Service Bureaus and make a payment of $6.42 for a copy of your credit score. You can do so too via the online portal.
If you’ve recently applied for a new credit facility with a CBS member, you will receive a letter indicating if your application has been approved or rejected. You can use this letter to get a free credit report from CBS within 30 days of the date on the letter.
With everything you do, exercise moderation; don’t check your score all the time. It’ll cost you a bomb and give you anxiety while you’re at it.
5. You Call Banks Frequently to Enquire and/or Apply for Funds
Taking on multiple loans in quick succession or enquiring about funds are red flags banks look out for. You’re signalling to potential lenders that you might be in a financially sticky situation of some sort or are already in debt.
You might think there’s no harm in just asking because “How would they know?” But every time your credit report is pulled out for an application, it’s tracked. These application inquiries will show up on your credit report and affect your score for a long time.
What you can do:
When you want to apply for a new loan, stick to the rules of online dating. Don’t appear desperate and over-eager by calling incessantly. Be cool – spread out and limit your enquiries. Use online comparison tools if you’re searching for the lowest interest rates.
The same goes when you apply for a new loan. Don’t get involved with too many loans too quickly and all at once. You might bite off more than you chew and have your bank account left battered and bruised.
Improving Your Credit Score in Singapore
If you’ve goofed up your credit score, don’t worry. With a little dedication and patience, you can correct your bad credit history.
For those with a bad score and who wish to apply for a home loan, it’s best to fix your score at least a year in advance. You’ll want to bump up your chances of approval and secure financing for your dream home.
Another tip is to take on small loans and pay the instalments in full and on time. Plus, it’s usually easier to apply for loans from banks you have credit cards or existing loans from.
Should you need help choosing a home loan, you can always approach one of PropertyGuru’s friendly and approachable home loan advisors. They’ll be happy to provide you with tailored advice, at no cost!Chat with us on Whatsapp Fill up an online form
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