Whether you know it or not, your credit score has a stake in your financial and life goals and plays a part in shaping your future opportunities.
If you believe credit scores only matter during loan applications, it’s time to reconsider.
What is a credit score?
A credit score, provided by the Credit Bureau Singapore (CBS), measures your creditworthiness.
It factors in your financial activities, including your payment history, outstanding debts, and recent credit application, to assess your integrity.
You will receive a rating on a scale of 1,000 to 2,000 points. 1,000 points is the lowest score with a corresponding risk grade of HH, suggesting a higher likelihood of payment default; 2,000 points is the highest rating, with a grade of AA, reflecting a low-risk debtor status.1
Financial institutes, such as banks, insurance and other moneylenders, use this score to assess your ability to handle credit responsibly.2
In other words, if you have a poor credit score, these financial institutions will weigh their risk more carefully before approving your loan.
But why should you care about your credit score? Or, a better question would be: how does your credit score impact your financial future and the quality of your life?
In this article, we explore the significance of a good credit score and how you can build and maintain it.
The Importance of Building A Good Credit Score As A Young Singaporean
Access to credit and facilitate loan approvals
Before you qualify for a loan or a credit card, creditors use your credit score to evaluate the likelihood of you defaulting on your loan.
In Singapore, a high credit score tags you as a low-risk debtor to the lender. A good or high score improves your chance of getting approved for loans, credit cards, and other financial products.
This significantly eases your path towards achieving your personal goals, especially if you are taking out loans to make big purchases like cars and homes a reality.
Get Approved for Higher Loans
A good credit score not only increases the chance of you getting approved for loans but grants you access to higher borrowing limits.
This is because your credit score reflects your financial credibility and showcases your capability to handle larger loans responsibly and repay them on time.
Conversely, you might still get loan approval with a bad score, but you will only be eligible for a limited sum– affecting your ability to afford more upscale purchases.
Lower Credit Card and Loan Interest
A good credit score will save you thousands in the long run.
As long as your credit history is positive, it can serve as leverage when negotiating for better loan terms. This means you pay less in interest than those with average or bad credit scores.
With lower interest rates on loans, you can also accelerate your payoff progress, saving time and money for your other goals.
Better Job and Rental Eligibility
Companies authorised by the Credit Bureau Singapore (CBS) have the right to request for your credit report to make a well-rounded hiring decision. This is usually relevant for banks and companies in the financial sector.
Landlords may also ask to see your credit score during their screening procedure.
While your credit score is only one of the many indicators for job and rental eligibility, nonetheless, a good credit score paints a better impression of your trustworthiness and responsibility.
How to start building a good credit score
Build a Credit History
People are wary of the unknown. Without a credit history, creditors have no idea what to expect, affecting your chance to enjoy better perks, such as those listed above.
To build up a credit history, you can start with a secured credit card or a credit-building loan. For students, there are options to build up your credit profile with a student credit card.
There are other channels to explore too— such as paying back your student loan promptly or having your landlord report your rent payments to the credit bureaus.
Pay your dues on time
Time is money, and this holds true especially for financial institutes. That's why the punctuality with which you pay off your bills or loans directly affects the grading of your credit score. To maintain a healthy score, it’s crucial to consistently make on-time payments, displaying your financial integrity.
Use your credit cards prudently
We’ve all heard cautionary tales about credit card spending. When spending your future funds, it’s extra important to monitor your expenses to ensure you can afford to repay your dues in full.
Credit cards have credit limits. Aim to keep your credit utilisation rate low to showcase responsible and conscious spending habits.
Limit Credit Application and Loan Inquiries
Multiple credit applications or loan inquiries within a short time frame can raise concerns about your financial health. Even if you are not facing any financial distress, this trend signals to lenders that you may have taken on more debt than you might comfortably handle, marking you as a risky borrower.
So, limit the credit application you make and research and target specific loan options to minimise inquiries.
Final Thoughts
Just like building trust, building a good credit score requires time.
Periodically review your credit report to verify its accuracy and track your progress to stay mindful of your financial habits. You can get your credit report from CBS here.
By focusing on making responsible and prudent financial decisions, you pave the way for better lending terms, financial flexibility, and increased opportunities in Singapore. When you keep your credit score in check, you’ll be well on the path to long-term financial success.
We hope this article helped you in your financial journey. Share this with a friend who might need it too.
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The views expressed in this media do not necessarily reflect the views of PFPFA Pte Ltd (“PFPFA”). The information provided herein is intended for general circulation and not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use will be contrary to local laws or regulation. You should also note that the information presented does not have regard to the specific investment objectives, financial situation or the particular needs of any specific individuals; and therefore, may not be appropriate to your individual needs. You should seek the advice of your financial adviser representative or a professional before making any commitment to purchase or invest in any investment product.
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