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Credit Scores: What are they and how do they work

Credit scores are something of an enduring mystery to Singaporeans. We all know they affect our loan applications, but it’s a rare person who can describe “the system” in detail. We’re going to clear up some of the confusion here:


What is a credit score?

Credit scores are an indicator of your credit-worthiness. They determine how likely you are to repay your loans.

In Singapore, consumer credit scores are recorded by the Credit Bureau of Singapore (CBS). Banks and financial institutions contribute data to CBS, which compiles information on your various loans and repayments. CBS then uses a proprietary (read: secret) algorithm, to determine your creditworthiness based on this information.


Your credit score is a four-digit number, which leads to a risk grade. Here’s how it works:


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In addition to these, there are “special” risk grades. These are:

Hx – Legal issues. You are involved in bankruptcy proceedings, or you have pending litigation of some sort. Loans are not usually possible.

Note that if you are bankrupt, it will be erased from your credit score five years after receiving a letter of discharge.

Hz – You have loans above $300, that have not been paid in 90 days or more. Alternatively, you have defaulted at some point, or had to renegotiate loan repayments. Most banks will be willing to lend you smaller amounts than usual.

Gx – Someone (possibly yourself) has attempted to check your credit record, but found no credit information (usually this happens because you have never used credit before).

Bx – Inactive. While you have a credit history, all your credit accounts have since been closed (common among retirees, who may not have used credit cards or loans for a long time).

Cx – Thin credit file. You rarely use credit, or have never used it at all, so the system cannot give you a score. Most foreigners, or first-time loan applicants, start with this credit grade.

Note that the maximum amount you can borrow on a single loan (your loan quantums) start to be affected as soon as your risk grade is BB. This can impact home loans, car loans, education loans, and so forth.

Banks and financial institutions may outright refuse large loans, such as home loans, to borrowers with a risk grade of CC or below.


But wait, how are these numbers determined?

We don’t know how the algorithm works, so we can’t say exactly how many points you get for certain types of behaviour. However, we do know the factors that contribute to your credit score. These are, in order of importance:

  • How much debt you’re in. The more you owe, the more your credit score will be dragged down.

  • How often you repay your debts. Late payment (called delinquency) lowers your credit score. A complete failure to pay is known as a default, and this can permanently mar your credit score, or lower it for years.

  • Your 12-month record. You annual “performance”, in terms of how much you’ve borrowed and how reliably you repay loans, is a big determinant of your credit score from year to year.

  • How frequently and recently you’ve applied for credit. If you apply for a lot of credit in a very short time (e.g. taking up four or five personal loans at one go, or applying for six or seven credit cards within the span of a month), you will be identified as “credit-hungry”. This lowers your credit score, as it’s typically the behaviour of someone in financial trouble.

  • Credit history. If you have a long history of making reliable payments, you will of course have a better credit score than someone who doesn’t. Importantly, you’ll also have a better credit score than someone who has never used credit before.

  • Available credit. This assess how much credit you have available, whether or not you’ve actually used it. Having too many open accounts (e.g. multiple credit lines and dozens of unused credit cards) can lower your credit score.

  • Credit enquiries. Each time you make an enquiry for credit, such as by applying for a loan or applying for a credit card, it will be noted in your credit score. Making multiple enquiries in a short time will lower your credit score. However, note that checking on the status of your loan application does not count toward this.


I’m not Singaporean. What about my good / bad credit score in my home country?

It doesn’t matter. At present, there is no cross-border data exchange. That’s bad news if you have a good credit score back home (you’ll have to rebuild it), and good news if you have bad credit back home (no one here knows about it).

However, note that multinational banks sometimes share data with their branches abroad. This can still impact your loan application at those banks. This is an internal business process though, so we wouldn’t know which banks do it.


How do I check my current credit score?

It costs $6.42, and you can buy it from Credit Bureau Singapore. Note that only you, and the institutions you apply for credit from, can see your credit score. It is not possible for anyone else, even your spouse, to check your credit record.


How can I improve my credit score?

There are two ways to do this. The first is to take a small loan, and reliably make repayments. As you do this over a prolonged period, your credit score will improve. This is especially important if you’ve never used credit before – if you have a risk grade of Cx, for example, the bank will not be confident in giving you large loans (like a home loan).

The second way is to keep your credit use lean. Don’t apply for more credit cards and credit lines than you need. If you find that you have “excess” sources of credit, pay them off and close the account.

Neatness is also a factor: when applying for non-credit card loans (e.g. personal loans, renovation loans, and education loans), have a clear idea of how much you need, and get the amount in a single application.

Don’t apply for a $3,000 loan, suddenly realise you need $2,000 more, and then make a second application within the month. When you ramp up the number of credit enquiries and applications, your overall credit score sinks. Besides, you might have to pay an administrative fee each time!




This article is proudly sponsored by GoBear and first appeared here.


Choosing insurance and financial products was once a complicated and dull process. It was filled with tricks and different terms and conditions. Andre Hesselink didn’t think that was fair. He thought comparing insurance and financial products should be simple, straight forward and transparent. So, with the help of like-minded people, they solved this problem, leading us to GoBear.


(By GoBear)

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