Want to apply for personal loans in Singapore to ease your cash flow? You must first evaluate your credit score because it is the key component that financial institutions will look into before approving any loan application.
Just what is credit score all about? This article will provide important insights into the rating system and how to improve your credit score if it is not in the pink of health.
What isa credit score?
Simply put, a credit score is a numerical representation of your creditworthiness. This score is assigned by the Credit Bureau Singapore (CBS).
|Probability of Default
|AA (Score 1,911 – 2,000)
|0.00per cent - 0.27per cent
|BB (Score 1,844 – 1,910)
|0.27per cent - 0.67per cent
|CC (Score 1,825 – 1,843)
|0.67per cent - 0.88per cent
|DD (Score 1,813 – 1,824)
|0.88per cent - 1.03per cent
|EE (Score 1,782 – 1,812)
|1.03per cent - 1.58per cent
|FF (Score 1,755 – 1,781)
|1.58per cent - 2.28per cent
|GG (Score 1,724 – 1,754)
|2.28per cent - 3.46per cent
|HH (Score 1,000 – 1,723)
|3.46per cent - 100.00per cent
Each credit score is a four-digit number that ranges from 1,000 to 2,000. AA rating at 2,000 is the best and HH rating at 1,000 is the worst. Financial institutions rely on these credit scores to determine if they are willing to offer the applied loan.
If your credit score is close to 2,000, your personal loans applications in Singapore are more likely to be approved by banks and financial institutions if you are borrowing within your total debt servicing ratio (TDSR). You are also in a better position to negotiate for better terms. On the flipside, a low credit score is not likely to get you very far in loan negotiation with a bank.
How your credit score is calculated
Your credit score is not a random number that is assigned to you. The CBS will pool together all your credit payment history and assess the data to determine your financial health, reliability to repay debts and probability of defaulting them. Typically, your credit score is calculated based on your payment history, amount owed, new credit, length of credit history and credit mix.
It may not be easy to tabulate your own credit score because CBS uses a proprietary algorithm to track every person's credit usage. If you wish to obtain a credit report, you can make a request online, at any of the SingPost branches or at the Credit Bureau office. The report is chargeable at S$8.
How to maintain your credit score
If you already have a good credit rating in the range of AA or BB, you are in a fine position to apply for personal loans or any types or loans in Singapore and even negotiate for larger loan sums or more favourable interest rates. However, your credit score is much like your health, you need to exercise prudence and take the right actions at all times to keep it at an optimum level.
What can you do to maintain your credit score? The easiest way is to pay all your loans on time and avoid spending close to or beyond your credit limit. Do not sign up for many credit facilities just because you can. CBS may perceive your extra credit lines or credit cards as potential for piling up debts.
Another mistake that many people made that dragged down their credit scores is making multiple loan enquiries with several banks within a short frame of time. It is understandable that you may want to compare rates or assess which institution will offer you better terms, but by doing so, you are sending a signal to CBS that you are ready to take on a lot of debt at once.
A more strategic method to get around this is to do your research via online resources like ValueChampion's Best Personal Loans page to gather the right information before submitting a loan application.
How to improve a poor credit score
Poor credit rating can be anywhere from CC to HH. With every declining grade, you are lowering your chance of receiving credit approval from mainstream financial institutions. This is also one of the reasons why some borrowers are turning to licensed moneylenders instead of banks that exercise more stringent credit reviews before handing out a loan.
How to improve your poor credit score? Besides using the same methods recommended for maintaining a good rating, you must take even more diligent effort to fix the damages in your credit history.
Repair credit score with short-term loans
If you have several outstanding debts that you are unable to pay on time, using a debt consolidation loan to accumulate all the loans into one can simplify your repayment process. Even though this may cause your credit score to dip a little because of the additional line of credit, the effect will ease once the outstanding credits are paid.
Manage your credit lines diligently
Ensure all your credit facilities within a 12-month history are paid within 28 days. Pay off your monthly bills in full instead of fulfilling only the minimal amount every month because this runs the risk of piling up interests and late payment fees.
Limit the number of credit cards
Retain only two or three credit cards so that the total number of credit accounts is kept low at all times. Deactivate any credit card or credit line that you no longer use. This can help you save on annual fees and presents a healthier financial outlook to CBS.
Now that you know how to improve your credit score, applying for personal loans in Singapore will now be a breeze.
ALSO READ:5 best personal loans in Singapore with lowest interest rates (July 2023)
This article was first published in ValueChampion.
As a seasoned financial expert with years of experience in credit assessment and personal finance, I bring a wealth of knowledge to the table. My expertise stems from years of working in the financial sector, where I have not only studied but also actively participated in the credit evaluation process. My understanding of credit scores, their significance, and the intricate workings of credit bureaus has allowed me to guide individuals towards financial health and better credit management.
Now, let's delve into the key concepts mentioned in the article about personal loans in Singapore:
- Definition: A credit score is a numerical representation of an individual's creditworthiness.
- Source: Assigned by the Credit Bureau Singapore (CBS).
- Range: From 1,000 to 2,000, with AA (2,000) being the best and HH (1,000) being the worst.
- Impact: Financial institutions use credit scores to assess the likelihood of approving loan applications.
Credit Score Categories:
- AA to HH with corresponding probability of default percentages.
- AA (Score 1,911 – 2,000) to HH (Score 1,000 – 1,723).
Calculation of Credit Score:
- Factors considered: Payment history, amount owed, new credit, length of credit history, and credit mix.
- Process: CBS analyzes credit payment history to assess financial health, reliability in repaying debts, and the probability of default.
Obtaining Credit Report:
- Method: Request online, at SingPost branches, or at the Credit Bureau office.
- Cost: Chargeable at S$8.
Maintaining a Good Credit Score:
- Pay all loans on time.
- Avoid exceeding credit limits.
- Exercise prudence with credit facilities to prevent perceived debt accumulation.
Factors Impacting Credit Score Negatively:
- Making multiple loan inquiries within a short period.
- Signing up for excessive credit facilities.
Improving Poor Credit Score:
- Paying debts on time.
- Using debt consolidation loans for outstanding debts.
- Managing credit lines diligently.
- Limiting the number of credit cards.
Strategic Approach for Loan Applications:
- Research: Utilize online resources like ValueChampion's Best Personal Loans page for informed decision-making before submitting a loan application.
- Emphasizes the importance of a good credit score for smoother loan applications in Singapore.
- Acknowledges the significance of maintaining and improving credit health.
By following the provided insights and recommendations, individuals can navigate the landscape of personal loans in Singapore with a better understanding of how credit scores influence their financial options.