How do I maintain good credit worthiness? What is Credit worthiness? How will banks even find out whether I maintain good credit or not?
In Singapore as with many other countries, banks check your credit score maintained by Credit Bureau. If you maintain a good credit score, you will find yourself welcomed by banks for loans or other credit facilities.
Maintaining good credit with banks is important, more so if you want your loans to be approved quickly and in full.
Your credit report is a record of your credit payment history compiled from different credit providers. Credit Bureau Singapore (CBS) supplements it with publicly available information such as bankruptcy data.
Image 1: Maintaining Good Credit Worthiness, Pixabay.
Is it accurate how I maintain good credit worthiness in the record might affect my chance of getting a loan in the future?
Many factors come into play in the financial institution’s final decision to grant or deny credit to consumers, and your credit history is one of the tools used by lenders to assess your creditworthiness. Defaults can hurt your creditworthiness and affect your chances of obtaining credit as most lenders will check your credit file to assess your credit worthiness prior to making a decision. A good credit repayment history will thus make it easier for you to obtain credit and to qualify for loans. By reviewing your credit report regularly, it allows you to be aware of any information that is uploaded on your credit file.
Credit Bureau Singapore (CBS) would like to encourage consumers to obtain a copy of their personal credit report so that they can better understand the type of information that banks and financial institutions view when they retrieve their credit file.
While different credit providers use different methods for credit assessment, some of these assessments are internal to the banks, while some are MAS mandated on the banks to follow through.
What Credit Factors do Banks or Financial Institutions look for?
1. How affordable is the loan for the applicant given his income and expenses?
2. What assets does the applicant own?
3. How does the consumer manage debt?
4. What are his payment patterns?
5. How many loans and other credit facilities does he have?
6. What is his current total debt?
7. Does he have a record of bankruptcy proceedings, litigation or payment defaults?
How to Enhance my Credit Reputation?
The factors that are likely to influence the outcome of your credit application include:
– Payment conduct – Payment history is a very important factor in determining your credit score. Since recent history carries more weight than what happened five years ago, getting in the habit of making on-time payments is an incredibly powerful way to improve your credit rating.
- Number of credit facilities owned – Avoid multiple sources of credit. It is more manageable to keep track of 2 credit cards rather than 10.
- Outstanding account balances – Lenders like to see plenty of breathing room between the amount of debt reported on your credit cards & your total credit limits. The more debt you pay off, the wider that gap & the better your credit rating.
- Record of bankruptcy proceedings – Bankruptcy is the most catastrophic impediment to your good credit reputation far worse than delinquencies, loans or collections. Its impact, however, is dependant on how many defaults you made on your credit before you filed.
Steps to take to Maintain Good Credit Generally
- Pay bills on time and preferably in full, where possible
- Pay down debts and consider charging less
- Limit the number of credit cards you owns
- Cancel any unused cards
- Not applying for lots of credit at once
- Stay out of bankruptcy if you can (Approach the banks to restructure the debt if possible)
- Get credit report
- Seek credit counseling
Credit Bureau (Singapore) (CBS) encourages consumers to obtain a copy of their personal credit report so that they can better understand the type of information that banks and financial institutions view when they retrieve their credit file.
A copy of one’s credit report can be obtained via www.creditbureau.com.sg using one’s SingPass ID and password, at any of the 66 SingPost branches, CrimsonLogic Service Bureaus, or from the CBS head office at 2 Shenton Way, #20-02 SGX Centre 1, Singapore 068804. For more information, call the CBS hotline at 6513 8393 or email email@example.com.
When it comes to housing loans, Paul HO, CEO and founder of iCompareLoan.com says, “While often we heard people say that I have a good credit record, how is it that the banks are not lending to me?” “Banks have to comply to MAS rules and have different limits for different types of loans. For instance, private residential housing loans are subjected to Total Debt Servicing Ratio (TDSR) set at 60% for affordability tests, while HDB housing loans are subjected to Monthly Servicing Ratio (MSR) set at 30% of the gross income, followed by the Total Debt Servicing Ratio (TDSR) at 60% and both must pass. For personal loans, the maximum a bank can lend is set to 12 times the monthly income total, while any single bank can lend you up to 2 times your monthly income or 4 times your monthly income, if your annual income is above $120,000, there are banks that can lend you up to 8 times your monthly income. And yet again for Renovation Loan, it’s subjected to a cap of $30,000 loan. So these rules are added on top of the credit report. So it is not enough just to maintain good credit record, you also have to earn more.”