Are you aware that your credit payment history is “on the record” and has an impact on how lenders like banks view you as a borrower? This could be disconcerting to some. However, this is a reality in almost every country with a comprehensive financial system. So, instead of stressing out, learn how the system functions and remain in good standing to qualify for low-interest loans.
Credit Bureau Singapore (CBS) is the backbone of this system in Singapore; it compiles data from various sources (including but not limited to banks, finance companies, and credit card companies) to give lenders an accurate picture of a borrower’s credit risk.
Financial organizations will base their decision to lend to you and the interest rate they will charge you largely on the information provided by your credit profile.
In what ways does your conduct influence your credit score?
The “credit score” is CBS’s central metric; it provides lenders with an assessment of a borrower’s creditworthiness and indicates the likelihood of default.
The components of your credit score are as follows.
Number of credit applications and credit usage
Financial institutions may suspect over-extending if you have been taking on additional credit facilities (more debt) in a short period of time. Your grade might drop if they see this.
Overdue loan payments
Such behaviors are stigmatized as “delinquency” (another name for criminal behavior). Your credit score will take a hit if you have a history of paying bills or loans late.
Duration of your credit record
Lenders favor applicants with established credit histories over those who are just starting out. You should make it a point to pay your bills on time consistently to build a solid credit history.
Accessible credit
The number of credit lines you have available is what this means. Having too many credit cards and lines of credit can reduce your credit score.
What is your current credit score?
A credit score between 1,000 and 2,000 is calculated based on the aforementioned aspects of your credit behavior. Those who score below a thousand are considered to be at the biggest risk of payment default. They have an HH ranking in terms of safety. At the upper end of the scale, those with a score of 2,000 are considered to be the safest. And their credit rating would be as high as AA, the highest possible.
A borrower’s credit score will be considered by potential lenders. Your annual pay, tenure of employment, and any history of bankruptcy or litigation may all play a role. If you apply for a loan, your credit score could determine whether or not you qualify for the greatest interest rate the lender offers.
When determining your credit score, a rolling 12-month record of your account payments is used. If you make all of your payments on time, you can restore your payment history within a year.
However, enquiries made on your credit report by financial organizations will be kept for 2 years. There will be a three-year window where default records with a “negotiated” or “full settlement” status can be viewed. Records of default that are still pending, partially paid, or “sold off” will remain visible eternally.
When does debt become unmanageable?
This is why maintaining vigilance and command over your debt is crucial. If you owe more than $15,000 and are behind on payments, your lender might file for bankruptcy protection.
If you file for bankruptcy, your creditors will have the right to liquidate all of your assets (save for exempt ones like your HDB flat and CPF funds) to pay off your debts.
Working people are also required to pay into the “bankruptcy estate” on a regular basis. You can put this toward reducing your debts. The Insolvency and Public Trustees Office will report your bankruptcy to the credit bureaus for 5 years after your discharge.
Have you checked your credit score recently?
The vast majority of us have no idea where we are with creditors.
The online credit check only takes a few minutes and costs $8.00 plus GST at the current rate. The bank that handled your credit card application may give you a free copy of your credit report if you recently applied for a card.
Get going, already!
Get your finances checked up and learn how to better manage your future by contacting a Financial Advisor today.