A bad credit score can greatly negatively affect your loan-taking transactions. Some financial institutions, such as banks, will not approve your loan application with a credit score that is less than optimal. However, it is not impossible to improve bad scores, although it will take some time and effort.
Understanding Credit Score
Your credit score shows your reliability and trustworthiness as a client, which can affect your loan application positively or negatively. Credit scores are used to assess any credit application and will ultimately influence its approval or rejection. It is determined using various indicators: the amount of existing credit that you have, number of recent applications for new credit, previous late payment on loans, length of credit history, available credit facilities, as well as the number of credit applications and inquiries into your credit score.
Credit scores in Singapore range from 1000 to 2000, and higher numbers mean a more positive credit score. It also has eight corresponding risk grades from AA to HH, with AA being the highest and HH having the lowest grade. These risk grades offer probability percentages of default in loan applications.
|Score Range||Risk Grade||Probability of Default|
For example, a credit score of 1000 is considered the worst credit score and falls under HH’s credit risk grade, entailing a minimum probability of default at 3.46% and a maximum of 100%. On the other hand, credit scores within 1911-2000 fall under the AA credit grade, with a minimum probability of default at 0% and a maximum probability at 0.27%. Scores within the AA credit grade are the best scores to have in Singapore.
Aside from these risk grades, there are “ungraded” credit scores that also exist.
- HX: Public Record (Litigation Information).
This signifies a past and/or existing writ of summons/bankruptcy record filed against the borrower.
- HZ: Outstanding balance of >$300 not paid in >90 days.
This grade is given if outstanding balances are greater than $300 and have not been paid for more than 90 days. It can also mean a default or a loan repayment renegotiation has happened.
- GX: Inquiry Record Only.
This grade means that someone tried to check the credit record but found no information. Likely, the owner of the record has not used any credit yet.
- BX: Inactive.
This means that all the borrower’s accounts have been closed already.
- CX: Insufficient Credit Activity.
This means that the credit file is thin and has very limited information, so the system cannot give a credit score. This is common for foreigners and first-time loan applicants.
The importance of credit scores varies between loan applications made with banks and applications made with licensed moneylenders. Banks will almost always require a good credit score because of their higher maximum loan amount offers. At the same time, licensed moneylenders will only consider them, which means that you can still get a loan with moneylenders even with bad credit scores.
However, even with licensed moneylenders approving a loan application with bad credit scores, the maximum loan amount can still be affected with a decrease, even as soon as a borrower reaches the BB credit grade.
An example of a non-loan related effect of a bad credit score would be checking scores in some businesses and employers’ employment application process. The Monetary Authority of Singapore (MAS) has recently announced (27 November 2019) that credit checks for employees and potential hires by financial institutions are appropriate. Sometimes, a bad credit score would mean the rejection of the employment application of the person involved.
What Affects the Credit Score?
Here are the factors that are taken into consideration in the computation of credit scores. It is important to have good results and situations in all of these factors to have a good overall credit score.
1. Utilization Pattern
Amount of credit owned/used on accounts by individuals. The more debt you currently have, the lower your score will be.
2. Recent Credit
Suppose you have been recently taking on many credit facilities within a short time. In that case, this may give the impression that you are carelessly borrowing, and it can be more than your capability to pay. This situation could lower your credit score, and borrowers should apply for new credit in moderation.
3. Account Delinquency Data
Late payment records on your loan accounts, known as delinquency, will lower your credit score. Aside from late payment, failing to pay, known as default, will be a permanent mark on your credit score or decrease it for years.
4. Credit Account History:
Financial institutions prefer a long credit payment history than short, fresh, or non-existent histories. They prefer positive credit repayment history as well. A 12-month account repayment behavior is used for score calculation.
5. Available Credit
The number of credit facilities. The amount of usage of these credit facilities is also taken into consideration. Your credit score might be negatively affected if you have multiple lines of credit.
6. Inquiry Activity
For a credit application, the corresponding financial institution will inquire into the borrower’s credit score with CBS, which takes note of the inquiry and shares this information with other financial institutions. Having multiple applications within a short amount of time will inform institutions that you are trying to acquire more debt.
Steps to Improve Your Credit Score
There are several ways to improve your credit score, and it is important to abide by all these steps rather than following just a single way. As said above, multiple factors are considered in the computation of your credit score.
1. Pay your bills on time
This is a very straightforward way to improve your credit score, as this improves your reputation as a borrower.
Avoid making late payments and always repay the minimum sum for credit cards before the end of the billing cycle. For loans, let the respective bank or licensed moneylender know in advance if you cannot pay on time.
You can also try to seek help from a credit counselor. A debt restructuring is also one of your options, which will do less damage to your credit score than a default. If you have a bad credit score, try to apply for consecutive small loan amounts first and pay them each time.
2. Pay off debt and keep balances low on credit cards
Even with regular payments, having outstanding balances in your lines of credit can still affect your credit score and can prevent you from acquiring more credit. Financing institutions will not offer you more credit if you are in the process of other loan servicing. Keep them low or pay them off if you have the resources available.
3. Don’t close unused credit cards
This might seem contradictory to the idea of minimizing credit to improve credit scores. Still, as long as the outstanding balances are very low or non-existent, it can be useful to keep unused credit cards open. This will serve as evidence of a good borrowing and repaying habit, which will help increase your credit score.
4. Don’t make multiple hard inquiries
If you keep on submitting multiple loan applications within a short time, you may be viewed as a reckless borrower trying to acquire debt more than your capability to pay. If possible, spread out your loan applications across time. Do not apply for multiple loans and inquiries at a single moment.
5. Dispute inaccuracies in credit reports
Check your credit history and attempt to correct any mistakes in your record. You may contact CBS at +65 6565 6363 or visit their office address at 2 Shenton Way, #20-02 SGX Centre 1, Singapore 068804. You can also send them an email at firstname.lastname@example.org.
How to Check Credit Score in Singapore?
You may request a copy of your credit file online, at any of the SingPost branches, at the Credit Bureau office, or at CrimsonLogic Service Bureaus.
The price for a CBS Credit Report is chargeable at $6.42 (inclusive of GST). If you request multiple delivery modes for your report, there will be an additional $2 fee for the service. Also, express 2 hours service for a credit report is available at SingPost Branches. The administrative fee for the express service is $17.12.
As for the payment options, you can opt to pay using cash, eNets, Visa, and Mastercard for payments made at the CBS office.
Your credit score is a very important aspect when it comes to getting your loan applications approved. This is a reflection of your identity as a borrower and will be used by financing institutions to decide whether they should approve your loan request or not.
Licensed moneylenders and banks have a different way of utilizing credit score information. For banks, a good credit score is often, if not always, mandatory. Licensed moneylenders can still approve a loan request for borrowers with low credit scores.
Credit scores computation uses utilization patterns, recent credit, account delinquency data, credit account history, available credit, and inquiry activity. Please take note of these factors and strive to improve them to achieve a good overall score.
To know your credit score, you may request a copy of your credit file online, at any of the SingPost branches, at the Credit Bureau office, or at CrimsonLogic Service Bureaus. Prepare your payment options and have at least one of them, specifically cash, eNets, Visa, or Mastercard.