I am struggling with bad credit. Is it the end of the world for me? Fret not! There are ways for you to improve your credit score.
While having bad credit is usually a costly and stressful experience in Singapore, it does not have to be the end of your financial prospects.
The situation may appear to be dire and hopeless, but bad credit is something that can be dealt with effectively. There are various things that can be done to begin the journey to improve your credit score.
Let’s start with the basics of what a credit score is.
A CBS credit score refer to the grades that consumers are given by the Credit Bureau of Singapore (CBS). These numbers are shared with financial institutions (banks, licensed money lenders, etc.) and creditors who may want to approve someone’s good credit or extend a loan.
It also acts as an indicator of the likelihood that an individual makes timely repayments on loans or whether he or she goes into default.
Credit scores are given on an index of 1000 – 2000 (AA – HH), with 1000 (HH) being the least ideal and 2000 (AA) being the most ideal.
- Creditors use credit scores to determine whether a person is credit worthy or a worthwhile credit risk. This makes it possible for creditors to find out whether there is a high possibility of the borrower making timely payments on a loan or paying off credit card bills.
- Third parties such as lenders often use credit scores as a way to evaluate the risk of lending someone money. Credit scores are among the options that various institutions, credit card companies and banks have for assessing the likelihood of a person being able to pay off the debts that he or she accumulates.
- Higher credit scores show that a person’s past behavior and current circumstances indicate an ability and willingness to pay off the loans they have been approved for.
With that said, credit scores are only one of the many factors that we look at while assessing whether you are suitable to apply for a loan.
We will also take other things into consideration such as your annual salary, length of employment, whether you have declared bankruptcy before and the number of credit facilities you have taken up a loan with.
Financial Implication Of Credit Scores
Credit scores affect people in two key ways: Whether the individual can be approved for a loan or credit card AND the interest rates that will be paid upon approval.
- A higher score means that there is a subsequently higher chance of getting approved for a loan or credit card. It is also likely to lower the interest rate of a particular card or loan. On the other hand, a low score may lead to being completely disqualified from a service or product. It can also raise the interest rates.
- Cards that are associated with lucrative or premium rewards are usually offered to consumers at a specified level of quality credit. Many credit cards are marketed to consumers who have excellent scores.
- In regards to cards, the score can be used as the basis of determining the options that a person has. Interest rates are directly affected by credit scores as higher scores are likely to receive lower interest rates.
- A credit score consists of a number of factors. These include recent credit search, type of credit, credit history, accounts owed or debt and payment history.
Importance of Good Credit Scores
Maintaining good credit offers several benefits:
- Low interest rates on various loans and credit cards: Interest rates refer to the costs that are associated with borrowing money. The interest rate is usually determined by a person’s credit score. A good credit score would usually attract lower charges on loans and credit card balances as well as favorable interest rates. Paying less money in interest makes it easier to pay off debt faster and frees up the money available for other expenses.
- Loan and credit card approval: Good credit scores are linked to better chances of approval for new credit. People who have good credit can confidently apply for a credit card or loan.
- Negotiating: Good credit scores enable people to have the leverage to negotiate reduced interest rates on new loans or credit cards. A low credit card diminishes the possibility of creditors adjusting their loan terms and restricts other credit options or offers.
- Higher limits: The capacity for borrowing is determined by credit score and income. Banks are willing to lend more money to people who have good credit scores because they have demonstrated their ability to pay what they have borrowed on time.
How Do I Improve My Credit Score?
Improving your credit score should be regarded as a gradual process rather than a quick fix.
With good or excellent scores, you can then look forward to applying for credit cards that come with premium rewards or be eligible for a loan with a lower interest. However, the journey to good credit can take time.
The first crucial step is to check your credit score to establish your current stand or situation. After getting an idea of how much improvement is required and the room for growth, a number of tips can be implemented to start establishing better credit.
The steps towards raising credit scores include the following:
- Reviewing credit reports.
- Keeping up with payments.
- Timing applications cautiously.
- Monitoring credit use.
- Active credit.
- Maintaining a patient approach.
1. Reviewing Credit Reports
Working effectively on a credit score involves knowing what needs to be worked on. Credit scores are based on the content that is provided by credit reports, which is why this is the first place you should go to if you wish to improve your credit score.
Checking credit reports makes it possible to find out the accounts that should be worked on.
Everyone is entitled to accurate credit reports. People can dispute errors in their credit reports by writing to the creditor or credit bureau that listed the account on the report. An error can damage a credit score with inaccurate reports of late payments, bringing down scores drastically.
2. Paying Bills On Time
When faced with a low credit score, it is important not to panic as there is still time to rectify the situation.
A history of late payments can be turned around by making sure that all bills are paid on time. This can be achieved by keeping track of savings and expenditure, making notes in calendars and signing up for payments online. You should do everything you can to ensure their monthly bills are paid on time.
At Lending Bee, we have circumvented this issue. We assign each of our clients a personalised login account where you are able to track your loan status to ensure that you make timely repayments to avoid any unnecessary late payment charges, and in the process, improve your credit score.
Payment history is a major determining factor for scoring systems. A credit score serves as a reflection of your ability to pay debts back effectively. Timely payments are a good sign of handling debts in the future responsibly as well.
Things such as foreclosures, repossessions, defaults and late payments should be avoided. Anything that showcases a non-performing liability can harm a person’s credit score.
Ultimately, keeping debts at bay shows lenders that you are responsible with your credit.
3. Timing Credit Applications
It is important to research how likely you will be able to get approval to make sure you are a good candidate prior to making a new credit card application. This helps to prevent the risk of lowering your credit score due to an application being denied.
You should also desist from applying for multiple credit cards before taking out a big loan or within a short period.
4. Monitoring Credit
By regularly keeping track of your credit score fluctuations regularly, you will better understand how effectively credit is being managed and whether there are any changes that need to be made.
A good score is expected when credit is only applied for when required, credit card balances are kept at modest levels and bills are paid on time.
It is also a good idea to set a credit score goal and meet it. Reviewing credit reports, avoiding new debt, paying down debt and making sure you don’t overspend on unnecessary items are just some of the steps that you can take to fulfill your credit score goals within a set period.
5. Credit Card Accounts
Although it may be tempting to shut down delinquent credit card accounts, this may end up having a negative impact on your credit. Leaving accounts open can be beneficial for credit scores if monthly payments are being made on time.
6. Patience And Commitment
Patience and commitment to the process are essential when repairing or improving credit.
It is without a doubt that improving credit cannot be an overnight affair.
Since credit is damaged over time, it obviously cannot be improved overnight. Making timely repayments each month on existing bills and debts will eventually help to improve your credit score.
About Ashley Sim
Calling herself a “professional multi-tasker”, Ashley worked as a relationship manager in a bank for five years. She left her job just before the pandemic happened and became a freelance writer for about a year. Now, she’s making the most of her love for writing and knowledge of the banking and financial industry in her role as a content marketing lead. She hopes to help people make better financial decisions through her content and campaigns.