Build Better Credit Habits as a Budding Borrower

Start early, and engage in healthy financial practices while you are still young. How you manage your money in your 20s can make or break the rest of your financial life. Habits are easier to form than to break, so the good financial habits that you establish early on will tend to stay with you well into your retirement years. Here are 6 smart credit habits that young adults should cultivate from the very start.

  1. Take the initiative to learn about personal finance.

Simply looking up financial articles on the internet is already a step towards financial independence. In this age of convenient technology, it has become quite easy to learn about good financial practices. Get yourself educated on the very basics of personal finance including how to read your credit report and how to improve your credit score.

  1. Keep an eye on your credit.

Constantly monitoring your credit report is an effective way to learn how different factors affect your credit. For example, you can observe how your credit moves after each of your credit-related actions, including getting a loan and paying your outstanding balances.

Aside from getting good firsthand experience, you may also be able to quickly catch errors or even fraudulent activity on your report. To see your credit score, you may inquire at the consumer credit bureaus in Singapore: Credit Bureau and DP Credit Bureau.

  1. Set up a budget and live below your means.

To live below your means, you have to spend less than what you earn. The very first step to this is to assess your financial situation. This will help you see the whole picture a lot easier. Determine how much you have, how much you earn, how much you spend and how much you owe. Take note of all your assets and debts, and have a clear record of the important information. Always remember to include a timeline showing the important points such as the dates you opened your accounts and the repayment terms of the loans. A sample format of your record might look like this or this.

Once you have a clear understanding of your financial situation you can work out a budget. Your allocations for each spending category will depend on how much your income is, and how much you wish to save. Once you have a financial plan, strictly limit your spending to stay within your budget.

If you find out that your expenses are greater than your income, quickly look for ways to cut down your expenditure. Cancel unnecessary outlays such as magazine subscriptions, expensive fashion pieces, luxury items and the like. Try to eat at home more often instead of going out to expensive restaurants. Skip the happy hours during Friday nights and the weekends. Limit your shopping sprees and impulsive purchases. Save your money for basic needs such as healthy food and versatile clothing as well as tuition fees and housing repayments.

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  1. Set up an emergency fund.

According to a survey conducted by EnjoyCompare.com, “most Singaporeans aged 20-35 years old are just one missed payment away from financial disaster”. The survey revealed that 4 out of 5 respondents have no savings to fall back on in case of an emergency.

Aside from setting aside money for your spending categories in your budget, you also have to set aside money for an emergency fund. Allocate a fixed percentage of your paycheck to the emergency fund and put it into an account that should only be used for that figurative rainy day.

  1. Make timely payments

Non-payments as well as late payments of your bills and loans may lead to bad credit records. One of the highest weighted factors used to compute your credit score is your on-time payment ratio. To consistently make timely payments, keep track of all the due dates for your credit cards and loans, and set up a calendar alarm before the payment is due. If your bank allows it, you may also automate your payments.

  1. Pay more than the minimum.

Break the habit of paying only the smallest amount required every month. Of course, this can be quite challenging, especially if you already have a large number of monthly bills and loan instalments to pay. You may have to carefully examine your budget and cut down on some expenses.

By paying more than the minimum, you can clear any debt such as student loans and credit card debts while you are still young. By the time you have greater financial obligations due to your own family when you’re in your 30s, you won’t have to worry about those old debts anymore. Moreover, the extra dollars that you put into your monthly instalments can help you save hundreds or even thousands of dollars in interest.

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C.E.O @ The New Savvy
Anna Haotanto is passionate about finance, education, women empowerment and children’s issues. Anna has been featured in CNBC, Forbes, The Straits Times, Business Insider, INC and The Peak Singapore. She was nominated and selected for FORTUNE Most Powerful Women conference in 2016 (Asia) and 2015 (San Francisco, Next Gen). Anna has 10 years of experience in the financial sector and is currently a Director in Tera Capital. Her previous work experience includes positions at Citigroup, United Overseas Bank, a regional role in Business Monitor and a boutique private equity firm based in Shanghai. She graduated from Singapore Management University (Finance and Quantitative Finance).