Beginner’s Guide to Building Your Credit Score in Singapore

It’s easy to get sucked into consuming more than you can afford. As Singaporeans get more affluent, we’re seeing people purchase homes, flashy cars, and so on. But while pursuing these material things, you might end up struggling to pay back your debt.

Moreover, your credit score will impact your ability to take out a loan, or apply for another credit card. So it’s time to understand how this can affect you.

What is a credit score?

A credit score is a four-digit score ranging from 1000 – 2000 that measures how “credit-worthy” you are. Financial institutions use this number when determining if they should approve your loan application. In Singapore, credit score is commonly known as “credit grade”.

How is your credit score calculated?

In Singapore, the Monetary Authority of Singapore (MAS) authorized these two credit bureaus in the overseeing and issuing of credit reports and credit scores:

  • Credit Bureau of Singapore (CBS)
  • DP Credit Bureau

On top of that, there is a grading system put in place grading those who have good payment history as “AA” and those with poor payment history as “HH”.

Score Range Risk Grade Probability of Default
Min Max
1911-2000 AA 0.00% 0.27%
1844-1910 BB 0.27% 0.67%
1825-1843 CC 0.67% 0.88%
1813-1824 DD 0.88% 1.03%
1782-1812 EE 1.03% 1.58%
1755-1781 FF 1.58% 2.28%
1724-1754 GG 2.28% 3.46%
1000-1723 HH 3.46% 100.0%

Source: https://www.creditbureau.com.sg/credit-score.html

Financial institutions all over Singapore pool together data about consumer’s credit history and that data is aggregated.

Getting a score near 2000 signals to banks and other financial firms of your capability in paying back loans in a timely manner. On the flipside, having a credit score near 1000 indicates the opposite. It shows that there’s a high chance you might delay your loan payment, or that you still have unpaid debt in your credit history.

Factors considered when calculating your credit score

Utilisation Pattern 

What it means: Your spending activity

Banks will be monitoring how often you spend your money. If your recent spending activity looks a little odd (i.e., you suddenly took out many loans), financial institutions might deem that suspicious and will be less willing to approve future applications.

Recent Credit 

What it means: Recent account activity

It is advisable to refrain from applying for new credit often (within a small amount of time), as lenders may perceive it as you trying to over-extend yourself.

Account Delinquency Data 

What it means: Delinquency refers to late payment

Having delinquency in your loan accounts will affect your credit score as it shows banks that you aren’t capable of paying back on time. Therefore, if you can, minimize making late payments on your loans.

Credit Account History 

What it means: How long you have been using credit as a form of payment

Who would you favour — an account holder with a longer, more established credit history or someone who has limited to no credit history? The answer seems pretty obvious. Individuals with a longer credit history come off as more reliable.

Protip: If you’re a young adult reading this, consider owning a credit card sooner than later.

Available Credit

What it means: Number of accounts available (open or active) for credit.

With many banks offering varying credit card perks and benefits, it becomes easy to get swept into applying for them all. However, although you may feel like this is wise, the number of credit accounts you have can severely affect your credit score. Not to mention the effort to keep track of every card payment, so keep that in mind before signing up for a another new credit card.

Enquiry Activity

What it means: The number of new application enquiries found in your credit

As enticing as it seems, it’s best not to apply for new credit unless you really need it. Having too many enquiries on your report gives off the impression that you are trying to take on more debt.

Benefits of building a credit score

Having a high credit score can bring you many benefits. For instance, banks and other financial institutions wouldn’t hesitate to lend to you, which means you’ll be able to get a bigger amount of loan! On top of that, you can get a loan more quickly and pay lower interest on them.

Ways to boost your credit score

1. Repay your loans on time 

Paying back your loans before their deadline prevents your credit score from dropping between grades — and saves you from a massive headache! However, if you fail to pay back your loans on time, you’ll be sent letters reminding you that your payment is due. You should take the first letter seriously (like a first warning) as subsequent letters mean that your credit report has already been negatively affected.

2. Don’t default on your loans 

Defaulting on your loan will taint your credit report forever. The consequences of defaulting a loan are drastic and it makes future processes of applying for a loan or credit card challenging. If you find yourself in a situation where you aren’t able to repay your loans, it’s always better to seek credit counselling and let professionals guide you through it.

3. Avoid borrowing from too many credit facilities 

On top of holding two or three credit cards for personal loans, people also tend to borrow from various lenders in order to raise money to buy a home or a car. Limit who you borrow from and avoid putting yourself in a dangerous situation.

4. Minimise your loan inquiries

As harmless as it sounds, contacting your lender frequently may actually do more harm than good. Having one too many loan applications may imply that you are facing financial difficulties and are desperately looking for funds. For reference, one inquiry would knock off 10-20 points on your score range and it stays in your record until you clarify the situation.

5. Practice discipline in your spending 

Practicing discipline in the way you spend and how you monitor your loans/repayments can go a long way. Stay alert of your credit activity so that you will know whether there are any suspicious activities occurring in your account.

Get the life you want

Staying on top of your financial activity is crucial, so as to avoid any additional stresses surrounding your finances. By following these steps to improve your credit score, you’ll be able to stay out of the banks’ blacklist and continue on building the lifestyle you dream of.

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