“What’s your current credit score?”
This is an important question that many Singaporeans do not know the answer to, even though it affects their ability to get a credit card or secure a loan facility from a bank. Some people may not even know that they have a personal credit score.
Whenever we apply for a credit facility, or use a credit card, our credit usage and related information are aggregated onto a centralised organisation, the Credit Bureau Singapore (CBS). CBS is a joint venture between the Association of Banks in Singapore (ABS) and an information management firm.
What CBS does is that it pools information from various banks to determine the credit risk of the person. This centralised repository of credit information helps inform member banks in their credit risk assessment of potential borrowers to make more accurate lending decisions.
Factors That Affect Your Credit Score
The CBS Credit Score is a four-digit number. The score ranges from 1000 – 2000. The higher the number, the better your credit score.
Latest credit score from our writer
The first thing you need to know is that CBS has an algorithm in place that automatically determines the credit score for each individual. How the algorithm calculates is not made known. However, some of these factors that determine the score have been shared by CBS.
They are: Utilisation Pattern; Recent Credit; Late Payment; Credit Account History; Available Credit and Enquiry Activities. You can read up more about how each of these factors could affect your credit score.
By knowing these factors, we are able to derive an idea about how we can either improve our credit score, or worse, unknowingly sabotage it.
The general perception is that by not having any credit card debt, or by not even using credit cards at all, a person would be able to enjoy a healthy credit score. But how true is that?
Here are some of the most common and biggest mistakes young (and even financially responsible) Singaporeans are actually making, which may be sabotaging their own credit score.
# 1 Not Having Any Credit Card
Some Singaporeans have sworn off credit cards, thinking it makes them more financially responsible and will help them receive important loans more easily in the future. They can’t be more wrong.
By not having a credit card or ever using one, it basically means you do not have a credit history. The implication of this is that when you do finally apply for some form of credit facilities such as a housing or renovation loan, the banks that you are applying for the loan from will not have any credible credit history to rely on.
In such a situation, your decision to not use credit cards actually works against you.
# 2 Applying For Too Many Credit Cards At Once
Another common mistake that some people make is that after not applying for any credit cards in their earlier years, they suddenly apply for multiple cards at once. This usually happens when they have an upcoming big-ticket expense to pay for, such as their wedding, and would like to utilise multiple cards in order to maximise their benefits from each card.
However, by applying for multiple cards at once, especially after not having any prior credit card history, you could adversely affect your own credit score.
We are not saying that you should not apply for cards to coincide with occasions where you are likely to incur a big-ticket expense. You really should. However, what you should be doing is gradually build up your credit history by applying for new credit cards periodically, and paying off the bills for each card on time. This way, by the time your wedding comes, if you do apply for one or two extra cards, your credit score will not be affected by a sudden influx of credit card applications.
# 3 Having Unnecessary Credit Facilities
Some credit card companies hand out additional incentives if you apply for multiple credit facilities at one go. For example, when you are applying for a credit card, the salesman may offer you a free gift if you apply for a credit facility at the same time. In order to get the free gift, you simply tick the little square box.
However, seemingly small action may have long-term detrimental repercussions on your credit score.
That’s because by signing up for credit facilities that you don’t actually need, you are indirectly increasing your credit risk. From your perspective, it may just be a harmless credit facility with the bank that you never intend to actually use. However, the banks and algorithms can’t differentiate that. Hence, it will be looked upon as a signal that you are someone who is actively looking for loans and hence you may be classified as a higher risk borrower.
# 4 Not Paying Your Bills On Time
If you regularly miss paying your bills, you will be penalised over time as it may be assumed that you are someone who doesn’t have enough money to pay on time. This will affect your credit score, even though the reason for your late payment may simply be because you tend to do your monthly payments for all bills after the credit card due date.
Not paying your bills could also be the result of using a rarely used credit card once, and then forgetting about the bill completely. This happens, even to the best of us. Over time, this small bill, incurring late charge fees and finance charges will snowball, causing not just a substantially larger bill but also a needless decline in your credit score.
Monitor Your Credit Score Closely
For most of us who do not have any credit card debt, it’s natural for us to assume that our credit card score is in the pink of health, and that there is nothing we need to worry about. However, as the above scenarios have highlighted, it’s possible for even financially responsible individuals, who spend well within their means each month to end up with a bad credit score.
By knowing what some of the common mistakes are, and the factors that can improve or decline our credit scores, Singaporeans can ensure that they don’t needlessly end up with a bad credit score.
Read Also: How You Can Improve Your Own Credit Score