Why is my credit score important? | DBS Singapore (2024)

Why is my credit score important? | DBS Singapore (1)

If you’ve only got a minute:

  • Credit Bureau Singapore (CBS) collects and aggregates information to provide borrowers’ total credit risk profile to financial institutions.
  • Financial institutions refer to your credit report to determine their willingness to lend to you and the price at which they will lend to you.
  • Your account repayment history is kept on a 12-month rolling basis for your credit score calculation, so it is possible to improve your score for the future.

Why is my credit score important? | DBS Singapore (2)

Did you know that your credit payment history is “on the record” and affects how financial institutions like banks regard you as a borrower? This may sound scary. But it is a fact of life in almost every country with a developed financial system. So, instead of freaking out, understand how the system works, and stay in its “good books”, so you can get access to loans at the best rates.

In Singapore, the heart of this system is an organisation called Credit Bureau Singapore (CBS), which collects and aggregates information from participating members, which range from banks to finance companies to credit card companies, to provide a total credit risk profile of borrowers to financial institutions.

This profile informs financial institutions of your credit risk and is at the core of their willingness to lend to you and determines the price at which they will lend to you.

Why is my credit score important? | DBS Singapore (3)

How does your behaviour affect your credit rating?

At the heart of CBS’ service is the “credit score”, which rates you on your financial activities – giving lenders an understanding of your ability to service loans and your risk of defaulting on your loans.

Here are some factors that determine your credit score.

Number of credit applications and amount of credit used

If you have been taking on new credit facilities (i.e. more debt) within a short period of time, financial institutions may suspect you are over-extending yourself. This could lower your score.

Late payments on loans

This is also known as “delinquency” and are regarded in a negative light. If you often pay your bills or loans late, it will drag down your credit score.

The length of your credit history

Lenders prefer borrowers with longer credit histories over those with shorter or no credit histories. Of course, you would want to ensure a good history of prompt repayments to support your credit score.

Available credit

This refers to the number of credit facilities you have. Your credit score can be lowered if you have multiple lines of credit and credit cards.

The number of credit applications and banks’ inquiries

Every time you apply for a new loan or a credit card, the financial institution involved will inquire into your credit score with CBS. This is then noted by CBS and shared with other financial institutions.

Your credit score may be negatively affected if you have made many such applications within a short space of time, as it will signal that you are looking to take on more debt.

What is your credit score?

Your credit behaviour as outlined above is aggregated into a score between 1,000 and 2,000. Those on the lowest end of the scale, that is 1,000 points, are flagged as having the highest risk of defaulting on a payment. They are rated HH. Those at the highest end of the score range, at 2,000 points, are perceived to have the lowest risk. And they would enjoy the best credit rating of AA.

Why is my credit score important? | DBS Singapore (4)

Lenders will use the credit score as one factor in their lending decisions. Other factors may include your annual salary, length of employment and bankruptcy or litigation information. Your credit score may also influence whether the lender will extend loans to you at the lowest rates offered to the borrowers with the best credit rating.

Your account repayment history is kept on a 12-month rolling basis, for your credit score calculation. So, it is possible to rebuild your account repayment record within 12 months if you are on time with all your payments.

However, inquiries by financial institutions for your credit report will be retained for 2 years. Default records with the status of “negotiated” or “full settlement” will be displayed for 3 years. Default records with status of outstanding, partial payment and “sold off” will be displayed indefinitely.

Why is my credit score important? | DBS Singapore (5)

What happens if your debt spirals out of control?

This is why it is important to keep tabs on your debt situation and stay in control. If you are in default of debt exceeding $15,000, your creditor (lender) can take bankruptcy proceedings against you.

In the event of bankruptcy, all your assets (except for protected assets such as your HDB flat and CPF monies) will be sold, with proceeds going towards settling your debts.

If you are employed, you will also have to make a monthly contribution from your salary, to the “bankruptcy estate”. This will go towards paying down your debts. Your record of bankruptcy from the Insolvency and Public Trustees Office will remain on your credit report for 5 years after you have been discharged from bankruptcy.

Do you know what your credit score is?

Most of us don’t have a clue on where we stand with lenders.

It takes only a few minutesto check your credit status onlineand costs only $8.00 with prevailing GST. If you have recently made an application for a credit card, the processing bank would have made an application for your credit report and may share it with you at no charge.

For urgent requests, you can pay $19.44 at any SingPost branch for a soft copy to be sent to you via email within 2 hours.

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As a financial expert with a deep understanding of credit systems and bureaus, I can provide valuable insights into the article about Credit Bureau Singapore (CBS) and the factors influencing credit scores.

Firstly, the information presented in the article aligns with the standard practices of credit reporting agencies worldwide. The article emphasizes the significance of CBS in Singapore, serving as the central hub that collects and consolidates credit-related information from various financial institutions, such as banks, finance companies, and credit card companies.

The article touches upon key concepts related to credit scoring, an essential aspect of the lending process. Here's a breakdown of the concepts mentioned:

  1. Credit Score and Credit Risk Profile:

    • CBS generates a credit score, ranging from 1,000 to 2,000, to assess an individual's creditworthiness.
    • A lower score indicates a higher risk of default (e.g., HH rating), while a higher score (e.g., AA rating) suggests a lower risk.
  2. Factors Influencing Credit Score:

    • Number and Amount of Credit Applications: Multiple applications in a short period may signal financial strain, potentially lowering the credit score.
    • Late Payments (Delinquency): Regular late payments on bills or loans can have a negative impact on the credit score.
    • Credit History Length: Longer credit histories are preferred by lenders, especially if they include a positive repayment record.
    • Available Credit: Having multiple lines of credit or credit cards can lower the credit score.
    • Credit Inquiries: Numerous inquiries within a short timeframe may negatively affect the credit score.
  3. Credit Score Calculation and Improvement:

    • The credit score is calculated based on the individual's credit behavior, and it is kept on a 12-month rolling basis.
    • Timely payments can contribute to improving the credit score over time.
  4. Credit Report Information Retention:

    • Credit inquiries by financial institutions are retained for 2 years.
    • Default records with different statuses are displayed for varying periods, with some displayed indefinitely.
  5. Debt Management and Bankruptcy:

    • If debt exceeds $15,000, creditors can initiate bankruptcy proceedings.
    • Bankruptcy leads to the sale of assets (excluding protected assets), and the individual must make monthly contributions towards settling debts.
    • Bankruptcy records remain on the credit report for 5 years after discharge.
  6. Checking Your Credit Score:

    • Individuals are encouraged to check their credit status regularly, as it plays a crucial role in lending decisions.
    • Various methods, including online checks and requests at SingPost, are highlighted in the article.

The article concludes by emphasizing the importance of financial awareness, suggesting individuals speak with Wealth Planning Managers for a financial health check or use NAV Planner for real-time financial analysis.

In summary, the information provided in the article aligns with standard credit reporting practices, highlighting the role of Credit Bureau Singapore and the factors influencing credit scores and lending decisions.

Why is my credit score important? | DBS Singapore (2024)

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