While Singaporeans know the vital importance of loans in their lives, only a handful knows the importance of a good credit rating. The standing of your credit score can greatly affect your future, with this sentiment, it is helpful to know what breaks or makes a healthy credit rating.
Whenever you apply for a big amount of loan either from banks or other financial institutions, they will pull out your credit rating to see your loan history and if you were able to repay each one diligently. Financial institutions have various ways of interpreting credit scores, however, you credit history will usually impact your future loans.
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Most banks and lenders will base your loans approval, amount of loan and sometimes interest rates on how well you credit rating stands. If you want to get a copy of your credit report, you can have your copy from Credit Bureau Singapore at S$6. The credit score can range from 1,000 to 2,000 and is graded with AA as the best and HH as the worst. Note that if you have credits in other countries, these will not be considered.
Credit Bureau Singapore will only keep records of your credit rating, however is it completely up to you of how to keep it in shape and it will depend on the particular lender on how it will be interpreted with regards to your loan application. To give you a hint, most lenders will reject loans applications if the borrower’s credit score is CC and below.
However, there will be instances when a Singaporean will not have a graded credit score. This happens when an individual has no credit history, has a past or current bankruptcy record, has all accounts yet they are closed, and the record only shows Credit Applications.
What happens if you have a bad credit score?
Your loan application may not get approved or your lender will offer a lower amount of loan. If for instance you need a certain amount of cash for your business, house improvement, studies or health issues, you will not be able to have.
Singaporeans need a house loan to buy a house. If you have a negative score, either you pay the down payment in cash if you have enough savings, or settle for a lower amount of loan. However, it will almost impossible to get a car if you cannot acquire a car loan. The car loan can be used to pay the car’s down payments, additional fees and taxes.
If you can’t get a student loan, then you might not be able to get the degree you wanted. This may cause you your dream career. On the other hand, even if you got a degree, there are times when employers in certain fields such as in finance, law, or politics will consider your credit rating or history. They may not be able to check if directly from the Credit Bureau, but then cam still require you to pass a copy to them during the interview. Some employers refuse to hire individuals with bad credit scores.
What Can Take Down your Credit Score?
- Number of credit accounts
Even though you have small credits from various credit cards, the fact that you have a handful gives a red flag to the potential lender. It will not also be helpful if you close all accounts. Keep an account or two and pay it on time.
- No credit history
As said a while ago, a no-credit history will be reflected as ungraded credit. Since there is nothing to be evaluated, the lender will not know if you are a low risk or high risk borrower. This poses as a problem because lenders usually refuse to approve big loans to those who have unknown risks. It is better to open a credit account and remember to service the payments.
- Multiple personal loans within a short period of time
While having no credit history is not good, having too many loans will also produce a red flag as it may seem that you have a financial desperation. This usually happens to those who did not know that they have applied for insufficient loans.
For example, an individual applied for a car loan. The car loan was approved, however the actual cost of having a car was underestimated since there are other things to be paid aside from the car’s actual price. To keep up with the unforeseen costs, the person applied for a personal loan. It is better to assess all the costs before getting a loan to make a well informed decision.
There are also times when a person gets loans to cover a repayment. You can use a loan calculator to properly estimate how much repayment you can handle, this way you can avoid getting personal loans just to payout an existing loan.
- Too much loan applications at the same time
While some Singaporeans think it is better to apply for loans simultaneously and then just choose one that best fits a certain need, this will not be reflected nicely on the credit ratings. You will look too needy if you are asking for loans all over the place. Before applying, shop around and compare interest rates of various loans to know which one is best for you.
- Late repayments
Your moneylenders have to report your payments, therefore your late repayments will be reflected in your credit rating. If you are not diligent with the repayment terms, then this will make your future lenders consider you as a high risk. If you know you are going to be late with your loan obligations, do not hesitate to talk to your lender. They are usually helpful and will be willing to adjust the repayment.
You can still clear your bankruptcy status, however, it will be continued to be reflected for five years. This can get on the way of your car loan, house loan or business loan.
- Default credit
If you consistently fail to repay your debt, this will be reported as a loss. Defaulting may seem to be an easy way out of a big loan, however if will be in your record and it will greatly pull down your credit score as well as your hopes to get new loans in the future.
How to keep your credit rating healthy?
- Do not make consecutive loan enquiries
Avoid being labeled as credit hungry by not making multiple loan enquiries. Those who badly need cash go to various lenders to get a loan, and this looks bad for future potential lenders as they can also see your enquiries in your credit history. If you really have to do a couple of loan applications, have an interval. Do not attempt to get a house loan and another personal loan in case you realize you need more cash for the down payment. You can get your home down payment from your Central Provident Fund (CPF) if you are getting a Housing and Development Board (HDB) flat and then use a personal loan to pay other costs as personal loans are more flexible than house loans.
- Repay your loans diligently
Do not ignore your moneylender’s letters to remind you of your payment. Lenders are willing to help you adjust their repayment terms if you tell them your status instead of hiding and defaulting. If you know you are short for the coming scheduled repayment, tell your lender ahead of time.
- Take a small loan and repay
If you have a bad credit rating, you can repair it by taking a small loan and repaying it diligently. It will take some time, probably a year or two, but it will help in the long run as you will then be able to get a higher loan. You will be able to get a loan at S$500 without worrying about your credit score, however expect most lenders to give you a higher interest rate.
- Never default your loans regardless of amount
If you don’t pay your loans, you might never get another loan anymore. If might be impossible to get a home, car or student loan. If you get caught of a spiraling debt and you think it is impossible to pay all your loans, you can have your debt reconstructed and get in touch with a credit councilor.
If you are currently in need of a flexible loan to take your credit rating back up, drop by Cash Mart and chat with the friendly staff to start a smooth process of getting your personal loan. Cash Mart offers various loan solutions when you need it the most.
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