Some Singaporeans go about without ever using a personal loan. Thus, their credit score may not be that significant.
But what if a major need for money suddenly comes?
Whether you’ll need the cash to pay for your house or car, a loan can go a long way. However, you cannot take advantage of this financial tool if you have poor credit score.
Below are five ways to improve your credit score.
Credit Score vs. Credit Rating
Before we move on to the subject, there are some things that you need to understand: Credit score and credit rating are two different things.
Your credit score or credit grade is based on your previous records. This includes loan applications in the past, as well as your payment history. Were you able to pay your loans diligently or not?
On the other hand, credit rating is assigned by someone looking at your credit history. It can be someone from the bank or a moneylender’s loan verification officer. The officer decides if you’re creditworthy based on your payment history, job stability, and other factors.
Remember: A responsible moneylender won’t let you borrow money that you cannot pay.
So, how is your credit score determined?
In Singapore, there is a credit institution called Credit Bureau of Singapore.
A joint venture of Association of Banks in Singapore and Infocredit Holdings, CBS aggregates credit-related information among its participants. They also use a proprietary algorithm that monitors how you use your credit lines.
As mentioned earlier, your credit score is based on your previous records. So if you have a risk grade of BB or CC, it means you’re usually late in paying your loans. A grade of DD or lower indicates that you’re on default. Meaning you didn’t pay your loans.
The lower your credit score the less likely that banks, licensed moneylenders, and other financial institutions will approve your loan application.
So how can you improve your credit score?
1. Consolidate Your Debt
The best and simple way to improve your credit grade is to consolidate your debt.
Debt consolidation is combining all of your unsecured debts. As a result, you only have to worry about one due date and interest rate. This makes it easier for you to pay all of your debts.
And a good payment history can help improve your credit score.
2. Close Off Credits Cards You No Longer Use
Another thing that you should stop doing is maintaining multiple credit cards. That’s because multiple billing period, due dates, and annual fees can get you confused. This would make you prone to missing your payments. And a missed payment can hurt your credit score.
What can you do about it? Close off credits cards you no longer use. If you’re using your credit cards for personal use, there’s not much reason to have more than three lines.
Just keep the ones you always use and those with low interest rate. That way, you can manage your credit card bills. And you also get to save in annual membership fees!
3. Spread Out Your Loan Enquiry
It’s not advisable to send multiple loan enquiries within a short span.
In the event that a loan verification officer saw that you have five or six loan applications within a month, you will be tagged as “credit hungry.” And this is a sign that you are undergoing financial difficulty.
If you’re having financial burden, it’ll be difficult for you to pay additional loans. The end result: The officer might decline your loan application.
The best way to go about this is to always do some research. Check out the available moneylenders in your area. See which among them have the lowest interest rate before sending out an application.
4. Always Pay Your Loans on Time
So, you’re able to consolidate your debt. You also managed to save up on your credit cards’ membership fees.
If you’re lucky enough to get a loan so you can pay off your debts and improve your credit score, make sure that you can pay on time.
Regardless whether the bank or your moneylender waive off your late payment fee, it will still reflect on your credit report. And by the time you receive your second or third letter reminding you of your late payment, your credit grade would’ve dropped.
Always pay on time and in full as much as possible. If you’re going to miss your payment schedule, inform your bank or moneylender early. That way, you can work out on alternative payment scheme.
5. Never Default on Your Loans
Not paying your loans will reflect on your credit record indefinitely. Defaulting will make it difficult for you to get a credit card, home loan, or even apply for a personal loan.
As mentioned earlier, talk to your bank or moneylender if you’ll miss your due date. You can also seek credit counseling and have your debt restructured. It may lower your credit score, but it’s better than defaulting.
Moreover, defaulting will result into legal actions. You wouldn’t want debt collection officers and lawyers knocking on your door, would you?
Improving your credit score may take a while. Nonetheless, the mentioned tips can help you increase your grade within a year or two. By that time, you’ll be ready to apply for a major loan.
Are you in need of money to pay off your debt, give Cash Mart a call at +65 6397 4111. Cash Mart Singapore is a licensed moneylender that offers personal loan products with flexible repayment terms.
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