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5 Factors That Affects Your Credit Score And How To Improve It

credit score in singapore

One of the first few things you need to know when it comes to credit cards is the credit score. You’ve probably heard of the term but do you know what it’s about, exactly? How will credit score affect you and more importantly, how will it affect your spending? Here’s a guide on what makes up your credit score and some smart ways you can improve your credit score.

Why do we need credit scores?

Credit scores are used by lenders to access how likely an individual would repay his or her debt. Essentially, credit scores are tools to help lenders know the risk of lending.

In Singapore, the Credit Bureau of Singapore (CBS) is responsible in calculating individuals’ credit scores. Every individual’s credit score is a four-digit number between 1000 to 2000, where those scoring 1000 are most likely to default on payment.

What affects your credit score?

Utilisation pattern

  • This is the total credit used by individuals on their accounts

Recent credit

  • This refers to your most recent credit amounts. Lenders may find that you are over-stretching your credit if you apply for multiple cards over a short period of time.

Delinquency data

  • Late payments will contribute to a low credit score

Credit account history

  • Those who have a longer credit account history, and have been responsible with their credit, are deemed more reliable than those who don’t have any credit history at all.
  • Every 12 months, your repayment conduct will be displayed under the Account Status History in your credit report. The data will then be used to calculate your credit score

Enquiry activity

  • Whenever you make a new loan, banks or financial institutions will enquire for your credit report. If you have too many enquiries, you signal to lenders that you are taking on huge amounts of debt — perhaps more debt than you can handle.

How do I improve my credit score?

As you can see, there are multiple factors which affect your credit score. While it’s a no brainer that borrowing credit carelessly will hurt your credit score, it’s important to remember than having an inactive account also negatively impacts your score. Avoiding the use of credit cards altogether doesn’t contribute to building a healthy credit score for you. Instead, proving that you’re responsible with your credit is more important. Here are some simple ways to improve your credit score

1) Always be prompt with your payments

Not only will you suffer from the cost of heft late fees, you’ll also hurt your credit scores greatly. It’s good to be active with your credit accounts, however, it’s more important to show that you’re responsible and timely with your payments. After all, no one likes lending to irresponsible borrowers who never pay on time.

2) Keep your credit accounts active

While it’s true that if you don’t borrow, there’s no need to repay credit. And if there’s no need to repay, there’d be no late payment. However, the only way for banks to access how responsible a borrower you are is when you actually show it — and that can only happen when you use your credit facilities. To improve your credit score, you’ll need to use your card from time to time, make payments on time, and create a good track record for yourself.

3) Don’t apply for multiple cards at one go

Sure, it’s easier to keep track of your credit cards and pay them all on time if you applied for them around the same time. However, by applying for multiple cards in a short time, you give lenders the impression that you’re trying to borrow more than you can pay off. Make sure you only apply for cards you really need.

Bad records can stain your credit report for a number of yers. Default records remain in your report for 3 years while bankruptcy data is retained for 5 years. Ultimately, the best way to have good credit scores is through handling your finances responsibly. That means always paying on time, don’t buy what you can’t afford and maintain your credibility by keeping your account active.

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