Ravi Chandran
Credit reputation would reflect positively on you and help in your application for things like credit cards and home loans
Your credit reputation is just as important as your actual one as you apply for credit facilities. Your credit score is a representation of your risk level and is calculated based on your available credit information. As the information on your credit file changes in tandem with your monthly payment behaviour, so will your credit score.
Upon your application for a credit facility, financial institutions (FIs) are required to conduct checks on your credit file. These mandatory checks have been implemented to help individuals who are at risk of credit problems avoid getting into greater debt.
With your credit report, FIs are able to forecast your future payment habits. Hence, a good credit reputation would reflect positively on you and help in your application for things like credit cards and home loans.
Here are some factors that will affect your credit reputation, and in turn, your chances of availing credit.
1. Your number of credit facilities
How many is too many? The common misconception of taking on multiple new credit facilities might be ‘as long as I don’t use it, I should be fine’. Owning too many credit facilities contributes to your available credit, which FIs will take into consideration when granting your credit application. As such, consumers are advised to only apply for what is necessary.
2. Having too many new credit enquiries
Each time you apply for a new credit facility, lenders are required to do a bureau check to assess your creditworthiness. These enquiries will be recorded on your report and retained for two years. Applying for too many new credit facilities within a short period of time affects your score as it makes you look credit hungry. Apply in moderation!
3. An immature credit history
If you’re a fresh graduate or an individual who believes in ‘cash-only’ payment habits, you may not have previously owned any credit facilities. As such, the information in your credit file is limited, making it tougher for lenders to assess you and predict your future credit payment behaviour. You can start a positive credit record by getting yourself your first ever credit card (don’t miss out on earning cashback and rewards on your spends!), and enforce good payment behaviour. That could set you on the right path for your future applications.
4. Adverse credit history
A negative track record of payment history will make an applicant seem less appealing to lenders as they are deemed riskier than others who have positive ones. You can improve your credit score by paying your bills on time consistently. This will set you on the right track to repairing your credit reputation.
In Singapore as with many other countries, banks check your credit score maintained by Credit Bureau. If you maintain a good credit score, you will find yourself welcomed by banks for loans or other credit facilities.
Maintaining good credit with banks is important, more so if you want your loans to be approved quickly and in full.
Your credit report is a record of your credit payment history compiled from different credit providers. Credit Bureau Singapore (CBS) supplements it with publicly available information such as bankruptcy data.
Steps to take to Maintain Good Credit Generally
- Pay bills on time and preferably in full, where possible
- Pay down debts and consider charging less
- Limit the number of credit cards you owns
- Cancel any unused cards
- Not applying for lots of credit at once
- Stay out of bankruptcy if you can (Approach the banks to restructure the debt if possible)
- Get credit report
- Seek credit counseling
Credit Bureau (Singapore) (CBS) encourages consumers to obtain a copy of their personal credit report so that they can better understand the type of information that banks and financial institutions view when they retrieve their credit file.
A copy of one’s credit report can be obtained via www.creditbureau.com.sg using one’s SingPass ID and password, at any of the 66 SingPost branches, CrimsonLogic Service Bureaus, or from the CBS head office at 2 Shenton Way, #20-02 SGX Centre 1, Singapore 068804.
When it comes to housing loans, Paul HO, CEO and founder of iCompareLoan.com says, “While often we heard people say that I have a good credit record, how is it that the banks are not lending to me?”
“Banks have to comply to MAS rules and have different limits for different types of loans. For instance, private residential housing loans are subjected to Total Debt Servicing Ratio (TDSR) set at 60% for affordability tests, while HDB housing loans are subjected to Monthly Servicing Ratio (MSR) set at 30% of the gross income, followed by the Total Debt Servicing Ratio (TDSR) at 60% and both must pass.’
“For personal loans, the maximum a bank can lend is set to 12 times the monthly income total, while any single bank can lend you up to 2 times your monthly income or 4 times your monthly income, if your annual income is above $120,000, there are banks that can lend you up to 8 times your monthly income. And yet again for Renovation Loan, it’s subjected to a cap of $30,000 loan. So these rules are added on top of the credit report. So it is not enough just to maintain good credit record, you also have to earn more.”
The factors that are likely to influence the outcome of your credit application include:
– Payment conduct
– Payment history
These are very important factors in determining your credit score. Since recent history carries more weight than what happened five years ago, getting in the habit of making on-time payments is an incredibly powerful way to improve your credit rating.
- Number of credit facilities owned – Avoid multiple sources of credit. It is more manageable to keep track of 2 credit cards rather than 10.
- Outstanding account balances – Lenders like to see plenty of breathing room between the amount of debt reported on your credit cards & your total credit limits. The more debt you pay off, the wider that gap & the better your credit rating.
- Record of bankruptcy proceedings – Bankruptcy is the most catastrophic impediment to your good credit reputation far worse than delinquencies, loans or collections. Its impact, however, is dependant on how many defaults you made on your credit before you filed.
Individuals are advised to review their credit reports regularly or at least twice yearly. There’s no better time than now to boost your credit reputation!
