Loans and credit are essential financial tools that play a critical role in personal growth. They provide individuals with access to funds for significant expenses, such as purchasing a home, pursuing higher education, or expanding your business operations. Responsible use of credit helps build a positive credit history, which is crucial for securing better financial opportunities in the future.
Credit is a good way to help build your credit reputation on your credit report - given that you always repay your bills on time and in full. It can also help you to manage your finances if you are planning to make an important big-ticket purchase such as insurance bills, wedding ceremony or home renovations. Some lenders even offer attractive perks and promotions that can help you to save money instead of paying for the full priced items. However, be wary of the downside of credit so you do not unknowingly fall deeply into debts:
IPP might give you a false perception that you can easily repay back your bills and lead to impulsive buying. It is important to be practical and to spend only what you can afford so you do not end up buying things that you do not need.
Some lenders allow consumers to make a minimum repayment however if you do not make the full payment, your outstanding balances will accumulate together with high interest charges and hence making it more difficult for you to pay up your bills in the future. Making only the minimum payment will have a detrimental effect on your credit score and have a long-term negative impact as you struggle to pay off your outstanding bills on top of the high interest charges.
Take a moment to read through the terms and conditions before you sign yourself up for any new credit facility, be well versed on the penalty charges and interest-free repayment periods so you can have a smoother debt repayment journey. For instance, if you are planning to apply or refinance your housing loan, make sure to always check back on your expiry date for your lock-in period. Some of the home loans that are already out of the lock-in period will tend to have a spike or surge in interest rates.
Many people are unaware that borrowing on cash advance or overdraft terms may incur additional admin or interest charges on top of your original principal amount. Refrain from applying for such additional facilities unless this is for emergencies.
Some banks or credit card issuers allow you to spend beyond your assigned credit limit with an over limit fee. You should be mindful of the repercussions that might come along if you always have a habit of maxing out your credit limit, especially if you are incapable to pay back the full amount on time. Some banks might however grant you special credit limit increase if you are in need to make an urgent big transaction. Alternatively, you can also request your bank to lower your credit limit if you have a tendency to always over spend on your credit lines.
Borrowing beyond your means can leave you struggling financially as you go further into debt. Consider all the other existing loans that you have and understand your financial standing before applying for additional loans. Do not borrow for the sake of repaying another debt as you may risk falling into multiple, bigger debts which makes it even more difficult for you to repay in the future. It is also important to do ample research and clear any doubts with the lenders before you agree to take up any new credit/loan facilities.
To check your credit score, you can purchase a copy of your credit report at https://www.creditbureau.com.sg/. You can also view a sample credit report with detailed explanation over at this handy website: https://www.creditbureau.com.sg/enhanced-consumer-credit-report.html
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