What does credit score mean?
The likelihood of a borrower being able to repay a loan is highly dependent on his or her credit score, and this is of much interest to a lender. Credit scores are numerical values which, based on a consumer’s credit history, defines if you are worthy of getting the loan that you apply for. Ranging from 1,000-2,000, the greater your credit score – which equals a better risk grade or rating – the more you are considered financially reliable.
Why your credit score is important
The importance of credit scores cannot be overemphasised as they are vital in the application of any financial product from financial institutions, ranging from mortgage or best car loan Singapore, to even bank cards. These scores are used to assess the reliability of your financial footing by financial institutions, banks and even firms, as they can reasonably gauge the risks involved by granting you a loan. Higher scores imply stronger financial footing, and increases your chances of getting your loans granted. Fair credit scores can also aid you to get lower interest rates.
Credit scoring in Singapore
Rating; Score; Probability of default
AA; 1911-2000; 0.00% to 0.27%
BB; 1844-1910; 0.27% to 0.67%
CC; 1825-1843; 0.67% to 0.88%
DD; 1813-1824; 0.88% to 1.03%
EE; 1782-1812; 1.03% to 1.58%
FF; 1755-1781; 1.58% to 2.28%
GG; 1724-1754; 2.28% to 3.46%
HH; 1000-1723; 3.46% to 100.00%
AA – the highest possible credit rating
B-C – indicates late payments
D-H – many times caused by defaults where the lender is writing the loan off
There are also some additional credit ratings which don’t equal to a certain credit score. Those are HX, HZ, GX, BX and CX.
Credit score criteria
These are the factors that affect your credit score:
The amount of credit you owe or use on accounts
If you have applied for credit multiple times during a short time period, some lenders might be hesitant to grant yet another credit
Late repayment information
Your credit score will be affected if you have any late repayments on current loans
If you have a long and established credit history, you have a better chance of a higher credit score than a person with no or limited credit history – if your credit history contains fast repayments, your credit score will likely be even higher
How many active credit accounts that you have at the moment
Number of credit applications
Every time you apply for a loan or a credit, an enquiry is added to your credit report by the lender – having too many enquiries listed in your report might hurt your credit score as the lenders will think that you are trying to take on more debt than what you can handle
Credit agencies in Singapore
Credit Bureau Singapore (CBS) is the biggest credit agency in the country. The bureau was established by The Association of Banks in Singapore (ABS) and Infocredit Holdings Pte Ltd., and has full-industry uploads from all retail banks and major financial institutions in Singapore. Since 2002, CBS members have been allowed to disclose and obtain credit-related information from the bureau. CBS is regulated by The Monetary Authority of Singapore (MAS) that is working to support the integrity and transparency of the country’s financial sector.
CBS supports their credit providing members by collecting credit-related information and presenting a risk profile of a customer to them. This helps the credit providers to determine the likelihood of the customer repaying and therefore to improve their risk assessment capabilities.
What does credit check mean?
The process involved in viewing information from your credit report to discern your financial performance by a credit institution is termed a credit check. Your approval is not always requested to do this. However, a credit provider must have a justifiable reason to carry it out, such as you approaching them for a loan.
Companies that perform a credit check on you include:
- Banks, building, and agricultural cooperatives
- Credit providers
- Utility suppliers (e.g. water, gas, and electricity)
- Landlords and leasing firms
- Telecommunication companies
Your timely payments of loans, how much you have currently and how you manage it, are other aspects of a credit check firms seek to know.
How to improve the credit score
There are many fast and easy ways of making sure to get a better credit score. We have listed the most effective courses of action here:
1. Check your credit score frequently
Recurrently looking up your credit score reports will help you in making sure they are being maintained or improved. Failure to do this frequently may risk you being defrauded.
2. Manage credit cards and loans responsibly
Avoid reaching the limits of your credit card, as lenders will be made to believe you always live at the limit of your finances. So also, dissuade yourself from applying for a loan if there are other options available, such as saving or asking from family members.
3. ALWAYS pay on time
The ability to pay bills on time is a habit most banks and financial institutions laud a borrower for. The consistency and discipline of being able to make monthly repayments on time improve your credit score rating.
4. Pay off debt
Make sure that you pay off any existing debt (such as loans or credit) continuously, to prevent it from growing too big.
5. Do not apply for too many loans at once
Credit agencies will be hesitant in giving you loans if you apply for too many at once, as they will believe that you are in desperate need of the funds and are a high risk borrower, and might not be able to make repayment.
6. Avoid legal cases and bankruptcy
Keep off as much as possible from any legal issues and make sure to boost your financial position. It takes quite a while to recover from bankruptcy, and to get back to a solid credit score takes no less than two years.
What is a payment notice?
Default notices are formal emails or letters sent after a borrower has missed (usually) three to six payments. They are made up of several things, including:
- The type of agreement
- Clauses in the agreement that have been broken
- That you should set the account right
- Action(s) the creditor will employ upon failure to comply with the request
- The time frame expected for you to respond (often a minimum of 2 weeks)
The creditor can also:
- Order the full balance to be paid
- Have the debt transferred to a collection firm
- Take legal action
Further action will cease to be taken if repayment is made within the time period set in the payment notice, but missing future payments will necessitate the issuance of a default notice again.
We hope that this guide has helped you to further understand the dynamics of credit scoring, as well as the importance of your credit score when looking for the best personal loan Singapore. If you need to improve your financial health, everything should start with the credit score. With a good Singapore credit score, financial institutions and even employers will not see you as a liability and avoid being associated with you. Rather, a good score makes them want to draw you closer and grow together. This is why you cannot afford to get your eyes off your credit score all the time – whether you are shopping via a credit card or processing an auto loan.
The good news about credit score is that you can improve it using the methods we listed in this post. Sure, these strategies on how to improve credit rating can take some time, but the end results will be worth the effort. Go ahead and check credit score Singapore to know where your rating stands and start working on it right away.
One more thing – how to improve credit rating marks the first step; you need to ensure it remains high, preferably at a rating of AA (1911-2000). This will be a great time to adopt new financial discipline, such as improving your budgeting skills to ensure that no matter what you do, be it applying for a personal loan or shopping, it will help to enhance personal credit score as opposed to hurting it.