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Credit score in Singapore: What it is, why is it important and how to increase it?

Credit Card Hacks: What exactly is a credit score, and just how important is it when applying for a loan in Singapore?

Credit score report against a wooden background alongside a pen, pair of glasses and computer keyboard.
Credit score in Singapore: What it is, why is it important and how to increase it? (PHOTO: Getty) (scyther5 via Getty Images)

By Nicholas Yong

SINGAPORE – If you have ever taken out a loan to buy big-ticket items such as a new home or a car, you will be familiar with the process by which banks determine your ability to repay the loan.

Lenders will look at, among other things, your annual salary, length of employment, whether you have ever gone bankrupt and... your credit score.

But what exactly is a credit score, and just how important is it? Yahoo Finance Singapore breaks it down:

What is a credit score?

According to the Credit Bureau of Singapore (CBS), a credit score – sometimes known as a credit rating – is a four-digit number that ranks the likelihood of an individual repaying their debts or going into default. It is based on the individual's past payment of loans, and is a key part of their total credit risk profile.

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Other factors that determine your credit score include:

● Spending activity

● Available credit i.e. the amount of credit you have left to spend on your credit cards

● Whether you have a history of delinquency i.e. late payments on loans

● Whether you have taken on multiple loans in a short period of time – this may lead to a perception that you are over-extending yourself

Whenever you apply for a credit card or loan, banks and financial institutions will check your credit score with the CBS. Your credit score therefore affects everything from credit card applications to loan applications, as well as home loan and car loan interest rates. It can also help determine your ability to invest in certain financial products.

What is a good credit score in Singapore?

Table showing credit scores. (SCREENSHOT: CBS website)
Table showing credit scores. (SCREENSHOT: CBS website)

A credit score ranges from 1,000 to 2,000. Those at the lower end (rated HH) are considered the likeliest to default on payments, while those at the upper end (rated AA) are thought unlikely to be delinquent. Alongside the score, the risk grade and risk grade description are also provided.

CBS members range from banks to finance companies to credit card companies. The bureau collects information from them in order to provide a total credit risk profile of borrowers. This profile, together with other factors, will then determine whether a loan is offered to you, as well as the interest rate.

On its website, CBS said, "CBS neither 'blacklist' nor play a part in the lending approval decision which is fully undertaken by lenders and its lending policies. CBS, instead, only provides specific factual credit-related information about consumers who have credit or loan facilities to the lenders."

How to check your credit score in Singapore?

You can easily obtain a credit report via an online application to CBS for S$8. If you need it urgently, you can opt for an express service via any SingPost branch. For S$18 (before GST), a soft copy of your credit report will be sent to you within two hours of your application.

CBS will also provide a free credit report to those who recently applied for a loan with any of its members. If you recently applied for a credit card, try asking the bank for a copy of your credit report as it will have obtained it from the CBS in order to process your application.

How to improve your credit score?

Here are some ways to improve your credit score in Singapore:

Check your credit report

Verify if there are any inaccuracies in your report. If there is an error, be sure to dispute it with the CBS, together with supporting evidence.

Pay your bills on time

If you have a habit of only paying the minimum amount on your credit card bills, the interest will very quickly add up, and this will affect your credit score. Pay all of your bills on time, be they utilities, phone bills or student loans.

Don't apply for too many loans in a short space of time

Banks and financial institutions will take note of your enquiry activity. This refers to the number of times lenders enquire about your credit report – every time you apply for a new loan, it will trigger a request to the CBS for your report.

These enquiries are then placed on file and retained for two years. Too many enquiries will give lenders the impression that you are "credit hungry". This may mean that you are being declined by other lenders and also taking on more debt, hence increasing your exposure.

Pay off existing debts

Outstanding debts can greatly affect your credit score, so it is best to clear them quickly. Bear in mind that your account repayment history for the past 12 months is used to calculate your credit score.

How quickly can you improve your credit score?

While there is no fixed period, experts advise that it may take up to a year of good credit behaviour to improve your credit score.

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