How to Improve Your Credit Rating
As a consumer and potential borrower in Singapore, there is no lack of choices when it comes to lenders and loans. But there is one factor that could limit your loan options: your credit score or rating.
Your credit score shows your capacity and history as a borrower. A good rating means you have the capacity to pay debt and the discipline to pay them on time. Good rating also speaks well of your financial status. A good credit rating gives you better interest rates for your loans, mainly because your credit history indicates that you are not an investment and financial risk for your lender.
A bad credit score can mean a lot of things. It could mean you’ve had a number of defaults and late loan payments, for instance. Bad rating leads to equally bad interest rates, since your lender is compensating the investment risk by charging you higher interest rates. While there are still credit and loan options for people with not so impressive rating, it is ideal for you as a borrower to work on your rating in order to get better interest rates.
Credit report assessment
Every interested borrower should assess their credit reports before taking out a loan. This is to ensure that the reports contain accurate financial information. Your report could contain discrepancies, fraudulent applications, and late payment updates. If your credit rating does not accurately reflect your credit history, you can engage a credit repair service.
A Credit repair service will assess your financial information through your credit reports, and check for discrepancies. If there are inconsistencies, the repair service provider will forward your corrected information to the Credit Bureau of Singapore. Once the bureau approved the corrections, it will automatically update your credit rating.
Before getting this service, consider whether you really need credit repair. Credit repair does not automatically mean your credit rating will be improved. Assess your reports for any possible discrepancies. Only if you believe there’s a discrepancy should you get credit repair service.
Be careful of credit
Your rating isn’t entirely dependent on your financial capacity and your credit history. Most of the time, your number of open credit can affect your credit rating and credit capacity.
Banks, lenders, and even credit bureaus usually assess how many credit lines you have available. This means that the number of credit cards and charge cards you have will be checked. Even if you have been paying your bills on time, lenders and banks could deny your loan application if you have too many credit cards. The more credit lines you have, the higher the chance you could get other loans and incur more debts, making you a financial risk. This may only slightly affect your credit rating, but it will greatly affect your capacity to borrow or get loans and credit.
Cancel cards you don’t use and pay off credit card debts you have incurred over the years. In fact, when trying to improve your credit rating, you need to avoid using credit cards at all cost. This goes for charge cards as well, which are inherently worse than credit cards.
But credit bureaus do not merely check your loan and credit payments. All of your debts and unpaid balances are taken into account when bureaus and lending agencies compute your credit rating. This includes mobile phone contracts as well as other similar contracts. Your credit rating is a reflection of your overall financial and credit capacity.
Build your credit
The best way to improve your credit rating is to build it. This works both for individuals with extremely bad credit ratings and for those with no credit history yet.
Even with a bad credit rating, you can probably still get a loan, but with a high interest rate. Proving that you are capable of handling financial responsibilities is a good way to up your credit rating. Take out a small personal loan or a home equity line of credit if you need the money, and make sure your payments are always on time. This is very important because late payments can adversely affect your credit rating.
If you think that you will be late in making payments, inform your lender or your bank right away. Banks and lenders will be more than willing to renegotiate your loan terms. They would rather change your loan terms in order to avoid default. Many borrowers think banks and lenders prefer defaults, especially with secured loans. But lending institutions would prefer cash rather than non-monetary, non-liquid assets. Lending institutions are more likely to renegotiate your loan terms if you inform them of your possible financial difficulty beforehand.
Take the time to make yourself look financially stable. When in the process of building credit rating or fixing credit rating, do not apply for loans frequently. Financial institutions have means to know if you have previously applied for loans. You would not want a bank or lender to know that you have been denied a loan 10 times in the last 12 months. This gives the impression that you are in dire need of money, making you look financial unstable and even desperate. Check your credit rating at least once every year to see any changes and, hopefully, improvements.