What Makes a Good Credit Score And How to Improve Yours

What is a credit score and is it that important in Singapore? How does one go about maintaining or improving it?

Understanding credit scores and knowing your credit behaviour is key to being financially healthy. In developed countries like Singapore with a solid financial system in place, a good credit score can go a long way in helping individuals secure loans at good rates.

In this article, we will share some insights on what makes a good credit score and how you can improve yours.

How important is having a good credit score in Singapore?

Did you know that your credit payment history is recorded and can affect your ability to get loans? The Credit Bureau Singapore (CBS) collects information on borrowers’ credit risk to financial institutions. Each time you apply for a loan, the financial institution will refer to your credit report to determine how big or small a loan you can apply for, and the rates at which they will lend to you.

Given Singapore’s high cost of living, taking a loan for big expenses like a house or a car is inevitable. This is when having a good credit score makes it easier for individuals to qualify for loans, especially when a large sum of cash is required. However, people struggling with low credit scores often find themselves deprived of good financial options in times of need.

Some factors that can affect your credit score

The following are three reasons your credit score can be affected.

1. Amount of credit and debt

The more debts you have, the lower your credit score. If you have been taking multiple loans in quick succession, it may be a sign that you are over-extending yourself and this will affect how financial institutions view you as a borrower.

This is because, each time you apply for a new loan or credit card, the financial institution in question looks into your credit score with Credit Bureau Singapore (CBS). And if you have made many such applications within a short period, your credit score may be negatively impacted as it is seen as a sign that you are taking on too much debt, thus lowering your credit score.

2. Defaulting on loans

As an extension of taking too many loans, lenders are worried that you are likely to default on theirs. All it takes is one late payment or loan default to taint your credit score.

If you consistently make late payments or default on your loans, you will be penalised, and this can result in you no longer being able to apply for loans in the future.

3. Lack of credit history

On the flip side of too much debt, is too little debt. Some people may prefer not to have credit cards to keep their credit history clean and avoid incurring debt.

However, a lack of credit history makes it difficult for financial institutions to effectively determine your creditworthiness and repayment ability. It is therefore advisable to have at least one credit card—with payments made promptly and in full—to increase your credit rating, making you a suitable candidate for any loan application.

How to improve your credit score

Now that you know what decreases your credit score, here are seven ways you can improve it.

1. Watch your spending habits

One of the things that lenders look at before approving a legal loan in Singapore is your recent expense and usage patterns. If you’ve been making a lot of large purchases recently, this makes it harder for moneylenders to predict your usual spending patterns and your ability to repay the loan.

But that might feel unfair, especially if you’ve had to make many sudden big purchases that you may not otherwise have. For instance, moving into a new home and buying new furniture is not an expense one is likely to repeat too often. In that case, you can consider loans from licensed moneylenders, who are typically more lenient towards those with bad credit.

It’s also prudent to watch your spending habits so you’ll avoid going into debt. Cut back on luxuries and big expenses for a while, if you can. Or if you’re a person with many small expenses that just seem to add up over time, it might help to download an expense tracker app on your phone so you never get caught by surprise.

2. Pay your bills on time

If you do have to spend, one of the easiest things you can do to be seen as a responsible borrower is to make sure you never miss a deadline on a credit card or bill payment. Did you know that not just making late payments, but making partial payments can also contribute to a decreasing credit score?

If you’re finding it difficult to pay your bills, think of how you can reduce your expenses to be able to pay them off in full. And if you’re simply too busy and tend to forget to make payments on time, try setting a recurring monthly reminder on your phone so you’re always punctual.

3. Cut back on credit cards

Sometimes, banks offer irresistible deals to attract you as a credit card customer. But it’s better to hold off; the more credit facilities you have, the more you might be putting yourself in a bad position by making it look like you’re overextending yourself.

By having just one or two credit cards, you might miss out on some card discounts, but it’s worth it to maintain a good credit score. The simplest way to cut down is if you have cards with overlapping benefits, pick one to use and cancel the other. Besides, consolidating your spending on a single card might mean you get better benefits instead of accumulating small wins on multiple cards!

4. Stretch out your positive credit score ahead of any big loan applications

The calculation of your credit score depends on the last 12 months of your repayment history, including closed and defaulted accounts. So if you know you have an upcoming need for a large loan amount, try to keep your credit rating up in the year preceding that. By finding a system that works for you to manage your credit, you’ll be able to rebuild a rock-solid credit score in no time!

5. Get a debt consolidation loan

If a loan is completely unavoidable, or if you are struggling with a low credit score due to multiple loans, consider consolidating your debts into a single, fixed monthly repayment. Consolidating of debts may be right for you as due to the nature of a debt consolidation loan, it can help you save more over time as the interest rates are generally lower than any single individual loan

6. Repaying loans on time

The ideal way to maintain your credit score is to repay the loans you take on time. If this is difficult, a single consolidated loan can help to make it easier, as mentioned above. In the long run, with such timely payments, your credit score will improve and you can gain access to loans at better rates in the future, should the need arise.

7. Flexible repayment terms

Most authorised money lenders in Singapore and financial institutions offer flexible repayment terms. While this is subject to approval and largely depends on the borrower’s ability to repay the loan, it allows you to stretch your loan over some time to give you some breathing space.

However, it is important to remember that the longer the repayment period, the more interest you pay over time as well.

Improving your credit score takes time and effort, but it isn’t impossible. And when you do need a loan, you can look at R2D Credit’s flexible yet simple loan options to cover your needs.

About the Author

Clio Goh

Armed with years of experience crafting content for brands and companies across industries, Clio is ever-passionate about putting out top-notch, well-researched personal finance pieces that seek to educate.