HOW IMPORTANT ISIT AND HOW DO I SEE MY SCORE?
WHAT IS A CREDIT SCORE?
It is used by lenders as an indicator to assess one’s ability of repaying a debt as well as the probability of going into default*^1 The higher the scores, the more credible borrowers are in repaying their debts. Together with the credit score, a risk grade and default probability are also calculated (Refer to Table 1).
The 8 risk grades will affect your chances of getting credit. Borrowers with grades CC to AA tend to get loans approved easily. It becomes harder but still possible for grades FF to DD. And for a risk grade of GG or HH, no loan facility can approve of any credit.
WHAT AFFECTS YOUR CREDIT SCORE?
Credit score can be affected by various factors^1 & ^3. Here are some of the more common factors.
#1: Utilization Pattern
This refers to the amount of credit amount owed/used on accounts by individuals. An individual with a higher utilization pattern indicates a higher debt burden which reduces their credit score. For e.g. maxing out on your credit cards every month will reflect that you’re bad at managing finances, resulting in a lower credit score.
#2: Recent Credit
If you are constantly applying for credit, lenders may perceive that you’re over-extending yourself. How much is too much? Applying for 5 credits in 3 months is definitely a no-go.
#3: Late payment/repayments
Presence of late payments/repayments on your loan accounts will reduce your credit score.
#4: Credit Account History
An individual with a long-established credit history is deemed to be a more reliable borrower compared to one without a credit history. Account repayment history is also kept on a 12-month rolling basis so there’s the possibility of rebuilding your credit score. For individuals without a credit history, prompt payments are a way to boost your credit rating.
#5: Enquiry Activity
When a potential loan facility pulls your credit report in response to a new loan application, an enquiry is placed on your records. An individual with a high count of enquiries indicates to lenders that you’re trying to loan more which affects your score. Hence, the best way to reduce your enquiries is to limit the number of loan facilities and credit cards you apply for.
How can you calculate your credit score?
There’s no formula for you to calculate your own credit score, and credit score reports are directly generated by credit bureaus. You can purchase a copy of your credit score report (priced at $6.42), from Credit Bureau Singapore^4.
Checklist on keeping a healthy credit score ^5
Fulfil these 3 pointers so as to maintain a healthy credit score!
Pay all of your outstanding monthly credits in full
Keep track of all of your payment due dates and remember to pay beforehand or on time
Limit your credit sources to a few credit facilities. It will help to reduce your enquiries and it’s easier to keep track of payment due dates too.
Maintaining a healthy credit score is not that tough but it sure takes a whole lot of effort to keep it in good record. If you’ve got plans to get big ticket items such as a house or car, it’s best to get your credit report way beforehand so you know where you stand and make improvements if necessary!
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