What is Credit Score and How is it Calculated?
Your credit score is used to assess your credit worthiness and how likely you are to repay your debts. It is important when you apply for any form of credit or loan such as applying for a credit card or bank loans.
According to Credit Bureau Singapore, your credit score can be affected by your utilisation pattern, recent credit, account delinquency data, credit account history, available credit and enquiry activities.
Here’s how you may be ruining your own credit score without even realising it.
#1 Maxing Out Your Credit Card
Your credit score can be affected by how much debt you hold compared to your credit limit. By maxing out your credit card, you are using 100% of the available credit on the card.
For person A who only has $10,000 credit limit compared person B who has $20,000 credit limit, A would be using 100% of his credit limit and B would be using 50% of his credit limit given that both spends $10,000. A general rule of thumb is to avoid using more than 30% of your total available limit as that would damage your credit score.
#2 Closing Your Account
Closing account with high credit limit may hurt your credit score as you reduce the amount of credit you have. If you really have to, close your recent accounts instead of older ones. A shorter credit history is usually associated with higher risks.
#3 Missing Credit Card Payment
You may have the misconception that it is okay to miss your credit card payments. Not only can credit card companies charge you late fees and raise your interest rate if you miss a couple of payments, late payments can also end up in your credit reports and tarnish your credit score.
#4 Applying For Too Many Credit Cards At One Go
Applying for credit card increases your credit enquiries made by the banks. Having too many enquiries suggests that you are trying to take on more debt and this hurts your credit score. If possible, avoid making multiple enquiries within a short time frame. Instead, compare across the various credit cards and decide which you need the most.
While all these may seem trivial and of low importance at this point, it is always good to keep good credit habit so that you do not face the problem of not able to get credit in the future. Now that you know, think twice before applying for whipping out that credit card for all your spending!