How to optimise and improve your credit score
Cultivation of a good credit score is as important these days as brushing your teeth regularly! There comes a time in everyone’s life – whether you’re looking to take out a car loan, or enrolling at a university with the support of an education loan, or closing on that dream home, or even just applying for a new credit card – when your creditworthiness will be assessed by a financial institution. The level of your credit score, which reflects the likelihood of your paying off any money loaned to you, will be scrutinised by any smart lender who obviously wants to avoid a potential defaulter.
Your credit score is an important factor affecting your ability to borrow money from banks and other financial institutions. It will also influence the ease with which a lender will offer you a low-interest rate. A good credit score can save you hundreds or thousands of dollars in the long run. It is therefore crucial that you monitor your credit score and take extra steps to raise it as high as possible and keep it there.
Here are 6 ways to improve your credit score.
- Start building your credit history as soon as you can.
A non-existent credit history is almost as worrisome as a bad credit history. Credit scoring is used to predict your future behaviour based on your past financial activities, so if banks are not able to get any data to make an assessment about your fiscal stability, they may assume the worst about you.
Getting a credit card and making regular payments on it is one of the most straightforward ways to build a credit score. Be sure you apply for a credit card for which you can easily qualify.
Read: Different Types of Loans Available in Singapore
- Pay your bills on time and in full.
You have probably read this advice in many other financial articles. But it is so vital that we need to touch upon it again. Your credit score is meant to measure how likely you are to repay debts in a timely manner. This means that one of the most important factors contributing to a high credit score is your on-time payment percentage. Each time you make a full and timely payment, you prove to your current and future lenders that you can manage debt responsibly.
Just one single late payment can harm your credit health for years. Fortunately, it is still possible to improve your credit score even when it starts to dip. If you’ve missed a payment, catch up quickly and as soon as you can to ameliorate the negative effect. If your lone late payment hasn’t exceeded 30 days, it might be “forgiven” as an unintentionally missed payment. Even though it will still negatively affect your credit score, it is possible to bounce back from it. But in no case should you make a habit of paying after the due date! Setting calendar reminders is a great way to avoid late payments.
If you are behind by more than a month on any of your bills, get back on track immediately. Successfully catching up and consistently paying on time will have a positive effect on your credit history as you go forward. According to the Credit Bureau, the credit report “shows your track record on promptness of payment over a 12-month period”. This means that you can clean up the Account Status History section in your credit report by promptly paying your bills on time over the course of one year.
- Pay down your debt.
The less debt you have, the better your credit report will be. It is recommended to keep your credit utilisation ratio or your debt-to-credit ratio at no more than 30%. This means that if your credit limit is SGD 2,000, then the balance you owe should not exceed SGD 600.
You can calculate this ratio by dividing the amount of credit that you are using the amount of credit you are allowed. It might be even better to get your ratio down to 10%. By maintaining a low credit utilisation ratio each month, you show your current and future lenders that you are using your credit cards responsibly, but that you are not financially dependent upon them.
- Monitor your credit.
It can be difficult improve your credit score without knowing what it actually is and what factors are affecting it. To perform regular checkups on your credit report. You may purchase your credit report and look at your credit score for SGD 6.42 through the Credit Bureau.
The consumer credit bureaus’ reporting may not always be 100% percent accurate on your credit report. It is up to you to keep an eye on your credit and to dispute any inaccuracies. Errors may range from harmless mistakes in your personal information (e.g. street address) to more serious issues such as credit card fraud. If you spot an error, dispute it immediately with the credit bureau or the information provider (which may or may not be your bank).
- Get help from a credit counsellor.
If you are already at your wit’s end trying to improve your credit score, you may want to seek expert advice and support from a credit counsellor in Singapore.
- Keep up your good work.
On the other hand, if you already have a good credit score, then keep up your good work. A good credit score is something that you have to work towards and maintain. You need to consistently practise good financial habits your whole adult life long to keep your score high.
Related: Understanding How Debt Affects Your Credit Score
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