Credit scores are a reflection of an individual's creditworthiness, calculated based on several factors, including but not limited to loan applications and performance on existing loans. In simple terms, they are a measure that financial institutions use to determine the risk involved in lending money.
It is for this reason that they form a significant criterion for banks and other lenders when it comes to approving an individual's loan application, which can be challenging if a borrower's credit score is poor.
It’s not all bad, however, fixing a ‘jialat’ credit score to get your bank loan approved is possible with the right strategies..
The better your credit score, the higher your chances of having your loan approved. Additionally, it also increases the chances of banks and other lenders offering you more favourable terms, such as lower interest rates or more affordable monthly instalments.
Singaporean CBS credit scores range from 1000 to 2000, and are divided into eight levels, with the lowest being HH and the highest being AA.
To get into the good graces of banks and other lenders, you should have a rating of BB and above, which is a score of at least 1844.
In general, lenders do not have a hard and fast rule about the minimum credit score a borrower should have. The bottom line is that the better your score, the higher your loan approval chances would be.
To understand how to improve your credit score, it helps to know what contributes to a bad credit score in the first place. Of course, late payments, missed payments and inadequate payments are the main causes. Therefore, your strategy for improving your credit score should centre around these parameters.
Here are some practical and specific steps you can take to improve a ‘jialat’ credit score for a better bank loan approval rate:
The first step to better credit scores is to actually have a copy of your credit report. You can request for a soft copy of your report from CBS, or have a hardcopy printed for you at any SingPost outlet or CBS office.
Learn to read and interpret your report. More importantly, look out for any mistakes in your record. For instance, you may have completed some payments on a personal loan recently, but find that the records have not been updated to reflect this.
There have also been cases of identity theft, involving fraudulent attribution of loans and debts. Report any inaccuracies to CBS as soon as you can. Prepare supporting documents as proof in order to facilitate the correction process.
Payment history plays a significant role in how CBS calculates your credit score. If you would like to increase your score, make timely payments for all your loans. If necessary, reduce or eliminate any barriers that prevent you from paying your loans on time. For example, one effective strategy is to set some of your loan payments to auto-debit, linking it to one of your savings accounts.
Paying your debts on time increases your credit score, and thereby your trustworthiness as a borrower. It is an indication that you are a responsible borrower and have less risk of defaulting.
A personal loan might be a wise choice if you're seeking to limit your interest payments rather than using your credit card to the limit. In comparison to the absurdly high interest rates credit cards impose, such personal loans sometimes have lower rates. Furthermore, personal loans often have set interest rates, which provide a more consistent repayment schedule and may result in long-term cost savings. Additionally, they sometimes have longer periods, so you may divide the payments into more manageable monthly instalments. In contrast to credit cards, which may cause issues with fluctuating interest rates and the desire to make little payments, a personal loan supports a more disciplined repayment schedule.
Try applying for loans more slowly to prevent any negative effects on your credit score. Applying for loans quickly will cause lenders to take notice and perhaps reduce your credit score. A hard inquiry is usually made on your credit report for each loan application, and if you make several queries in a short period of time, it might look that you are in need of credit or are under financial hardship. Instead, use a more methodical strategy. Spend some time doing extensive research before selecting a loan that best suits your requirements and financial situation. Applying thoughtfully and at deliberate intervals might show that you take responsibility for your borrowing and lessen the chance that your credit score will suffer. Never forget that maintaining the health of your credit may be greatly aided by a little patience.
The debt to income ratio (DTI) is a measure of how your debts stand in relation to your income. It is calculated as the percentage of your monthly income that is used to service your debts, whether it be personal loans, home loans, credit cards, or vehicle loans.
Ideally, you should not allow your DTI to exceed 30%, meaning that no more than a third of your income should go towards settling loans and debts.
Although banks do not have a standard benchmark for DTIs, they generally consider a low ratio more favourably. Therefore, you should manage your finances to bring your commitments down. If you plan on making a future loan application, make sure that your total commitments, which include the new loan, don’t exceed the ideal DTI ratio.
Credit scores influence more than just bank loan approvals. They also determine the interest rates you receive, they influence borrowing limits, affect processing speeds and provide access to more loan options.
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