Sometimes life throws unexpected challenges at us. And when it does, we may be forced to borrow money to ensure that we can deal with them.
These challenging times may include medical emergencies, a good business deal you need to take advantage of, a wedding you need to pay for, a travel opportunity that could determine your future, unexpected car accidents that may require a car loan for vehicle replacement, etc.
It helps to be prepared in some way, which is where your creditworthiness comes in. Having a credit rating Singapore financial institutions consider acceptable will make it easier for you to get a loan when you need one.
You need to have a good credit history and scores because it shows financial institutions that you can be trusted with their money. The more trustworthy they think you are, the more money they are comfortable offering.
So, it pays to know everything you can about details in your credit report. Here is information to get you started.
How Is Credit Score Calculated?
One of the first things you need to understand is how your scores are calculated and what a credit score risk grade is. What considerations go into determining your score? And who is in charge of keeping these scores? This credit scoring information is important.
1. Who is in charge of keeping these credit histories?
Well, the Credit Bureau Singapore, whose address is at 2 Shenton Way 20, SGX Centre 1, is one of the institutions that are tasked with matters concerning your credit history. It is one of Singapore’s leading credit bureaus.
The Singapore Credit Bureau in Singapore has partnered with banks, credit card companies, and other kinds of financial institutions to keep track of your credit score. Its job is to check on their potential and existing customers’ creditworthiness. One of its main functions is to ensure that credit facilities can make good decisions as far as financing money is concerned.
2. Score calculation
Credit Bureau Singapore has a proprietary algorithm that calculates your scores. This score varies from 1000 to 2000. The calculations are done based on your account payment history kept on a 12-month rolling basis. Even your credit cards can help form this history.
If your scores tend towards 1000, then it means you are a high-risk borrower and more likely to default. On the other hand, if your numbers lean on the higher side, towards the 2000-mark, you are more trustworthy.
The latter means financial institutions, even those that give credit cards, will trust you more with their money. They would be more comfortable loan it to you.
3. What is a credit score risk grade?
The credit score risk grade is a grade that is given to every borrower within the Credit Bureau Singapore database. It depends on their credit score and indicates how risky it is for credit facilities to loan you money.
Credit score risk grades vary from AA to HH. If you score AA, it implies that you are the perfect borrower, who is least likely to default on loan repayments. Borrowers with this grade also have some of the highest scores around.
|RATING||CREDIT SCORE||PROBABILITY OF DEFAULT|
|AA||1911-2000||between <= 0.27%|
|BB||1844-1910||between 0.27% to 0.67%|
|CC||1825-1843||between 0.67% to 0.88%|
|DD||1813-1824||between 0.88% to 1.03%|
|EE||1782-1812||between 1.03% to 1.58%|
|FF||1755-1781||between 1.58% to 2.28%|
|GG||1724-1754||between 2.28% to 3.48%|
|HH||1000-1723||between >= 3.48%|
B or C grades indicate that you have delinquency and late repayment issues. Anything below D implies that the borrower has probably defaulted on a loan at some point. It could be something as simple as those credit cards you didn’t repay after your shopping spree.
Those that score HH, have the lowest scores possible in Singapore. A borrower with such risk grades is more likely to default on their loan repayments.
4. What considerations go into determining your credit score?
Most financial decisions that you make will affect your credit score in some way. Some of the considerations that a credit bureau makes to determine your credit score include:
- Length of credit history
- Late loan repayments
- Number of loans you are servicing (your credit card debt counts)
- Multiple credit inquiries within a short period
- Declaration of bankruptcy
To find out what your score is all you need to do is contact or visit the Credit Bureau Singapore for assistance. Once you pay the required $6.42 transactional fee, you will be able to access your credit report, which has your score and risk grade.
Why Should You Keep An Eye On Your Credit Score?
Even if you have no intention of strategically getting into debt, you may need to do so later. You may need a credit card at some point for convenience. For that reason, you need to ensure you have a positive credit report. It determines many things. These include:
1. Loan quantum
Loan quantum refers to the principal amount of money that a loan facility is willing to offer you. If you have a credit score, you may only qualify for a small loan. Your credit card limit may be lower. That’s because a financial institution may consider giving you a big loan as too much of a risk.
2. Your employability
Some employers in Singapore could ask to see your credit report first before they hire you. Having a poor report may cause you to lose your dream job. This is quite likely to happen if you want to work within the finance industry.
3. Interest rate charged
Lower credit scores may cause financial institutions to consider you a bigger risk. For this reason, they may give you loans at much higher interest rates. Credit cards in particular, carry very high-interest rates and may cost you a lot. That means you will end up owing more even if you borrow money for a short term.
How to Improve Your Credit Score?
Now that you know how credit scores are calculated, what goes into calculating them, and why they are important, you probably understand why you must improve your credit report numbers. Here are a few tips to get you started:
1. Repay your loans on time
A loan agreement is a contractual agreement. It usually outlines what is expected of you. One of those expectations is for borrowers to repay their loans on time.
Paying your loans late has consequences. First, it attracts late repayment fees. But most importantly, your inability to pay off what you owe will reflect in your credit history report and affect your scores as well as risk grade.So, find a way to repay your loans on time. If you are overwhelmed consider talking to your financial institutions about debt consolidation. You can also opt for debt management training by institutions such as Credit Counselling Singapore.
3. Avoid making multiple loan inquiries in a short time
Making many loan inquiries in a short time may imply that you have financial issues. All these inquiries will be reflected in your credit report within the credit bureau database. Your scores are likely to go down. And this “credit hungry” behavior acts as negative information. It is a red flag to any financial institution.
So, do your homework and limit your credit applications to those that ensure you are likely to get the loan that you need. Even a huge home loan can be obtained if you are well prepared.
3. Don’t have too many credit facilities open
The more credit facilities you have open, the more loans you have to pay off. Sooner or later you will get confused about which loan you have to service at a given time. Or you may end up being overwhelmed with the many debts you have to pay. Then you will end up with late repayments that will show up in your credit report, and affect your scores and risk grade.
Ensure you reduce the number of loans you are dealing with so that you can keep track of all your debts. That will enable you to pay them off easily.
4. Never default on your loans
Defaulting on your loans is one of the worst things you can do. You can be sure this untrustworthy behavior will be reflected in your credit ratings and overall credit report. And your risk grade will move closer to HH faster than you can blink.
Your credit scores, on the other hand, will drop significantly. All financial institutions will take note of your increased likelihood of defaulting on any loan they may give you.
So, avoid defaulting on your loans. If you feel you are not in a position to pay them, talk to your creditors, and explore your refinancing options. It will ensure you keep that credit score high.
5. Take and repay a loan to repair damaged credit
Having damaged credit and a low credit score can sometimes be fixed by building a more positive credit history. One way to do this is if you take a loan that you can pay off easily, then ensuring you repay it all on time.
Opt for small loans of $1000 or less. You can also opt for short-term loans of 3 months or less. Even maintaining one credit card that you pay off on time will help.
Keep Your Financial Status Healthy To Avoid Loan Rejections In The Future
If you anticipate having a financial need soon, don’t wait to get your loan to begin to fix things. Learn everything you can about what determines your creditworthiness. Understand your scores and risk grade.
Then begin making baby steps toward improving your credit score so that financial institutions can view you more positively. And where necessary, even if you don’t need a loan, borrow a few to begin the process of repairing your damaged credit.
That way, when you do need a huge loan, you will have higher credit scores and a better credit score risk grade. This will help you get a bigger loan quantum on favorable terms.
Being prepared now can ensure that you never have to deal with loan rejections at any point, even when a financial emergency arises. It’s always better to be proactive in managing your credit history than to be forced to be on the defensive.
If you are ready to take a loan, Instant Loan can help you make smarter financial decisions by providing free quotes from Singapore’s top loan providers.