Woman paying off credit card bills on time

How to improve your credit score

If you’re applying for a mortgage or a car loan, the saying “giving credit where credit is due” can take on a whole deeper meaning come application time. Ever wondered what a credit score is, or how you can improve your own credit score? Read on to find out.

A credit score is a number that financial institutions consider before they determine if they should approve your application. It is a joint effort between all the major finance institutions in Singapore, where data about consumers’ credit history is pooled together and aggregated. Within the aggregated data, financial institutions would have access to records that show the number of accounts that you have across different banks, and your payment history.

After crunching the available data, each account holder is then assigned a credit score, which indicates how good or bad of a risk you might be to the banks as a customer. The higher the number (up to 2,000 and AA rating), the better your credit score. While the exact weightage of how your credit score is calculated isn’t public knowledge, these are the factors that the Credit Bureau of Singapore uses in determining your credit score:

shopping or spending beyond your limits

Utilisation Pattern: Your spending activity

This refers to the usage patterns of the loan facility. Been making large purchases or transactions lately? Banks might become concerned about a sudden change in your spending patterns, and may be less willing to extend new lines of credit to you.

Recent Credit: Your recent account activity

Attracted to the promotions offered by numerous banks? You might want to hold off on sending applications for all of them. The number of credit facilities an account holder has is considered by banks as liabilities, and they may perceive that you are over-extending yourself.

Account Delinquency Data: How you’ve fared as a customer

Have you ever missed the payment deadline for your credit card? As much as possible, always avoid making late or partial payments for your facilities, as such actions will negatively affect your credit score.

Credit Account History: How long you’ve been a customer

Have you been a loyal customer of your bank since you received your first credit card from them? Have you always made payments on time, and in full? Banks consider your history as a reliable borrower and this would increase your credit score, as compared to someone who has a limited or poor credit history.

Available Credit: How much credit you have

Do you always have the 'right' card to make payment with in order to get a discount? While maximising your perks, cashback or frequent flyer miles is definitely rewarding, you might want to consider scaling back on your credit card collection because your credit score is affected by the number of accounts you have with various banks in Singapore.

Enquiry Activity: How many organisations have asked about you

Each time a bank or a financial institution makes an enquiry into your credit score, the request is logged. Having too many enquiries might indicate to banks that you could be taking on more debt than you should, thus reducing your credit worthiness.

How can you improve your credit score?

If you foresee that you’ll be seeking significant loan facilities a year or two ahead, here are some tips on how to better your credit score:

  • Be disciplined in your spending habits to avoid going into debt.
  • Limit the number of credit facilities that you have across the different financial institutions.
  • Have cards that overlap in benefits? Pick one, close the other, and consolidate your spending on it. You’ll remove excess liability from your records, and would likely also qualify for better benefits due to your higher spend.
  • Avoid defaulting on your repayments, and pay your bills on time, and in full.
  • Avoid applying for accounts that you may not need.

Remember: Your past 12 months of account repayment history is logged and used for your score calculation (including closed and defaulted accounts), so building a habit of good credit management is key. Although credit remediation is a slow and steady process, with patience and discipline, your score should soon improve.

If you’d like to find out your credit score, you may request a copy of your credit file online, at any SingPost branch, at the Credit Bureau office, or several other locations for a small fee.

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Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.

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