A credit score is very similar to a scorecard, it contains the record of our loan repayment habits. Basically, whenever we take a loan, secured or unsecured, the data of our repayment habits is collated and kept by the credit bureau Singapore.Based on these records, we are all given a credit score that provides lenders with a good understanding of the way we deal with our debts/loans.
With that, lenders can evaluate their risk better and decide whether they would like to provide us with additional credit or not. Hence, it’s important that we keep our score good if not perfect to ensure that we will always be considered for maximum credit/loan in the event that we might need to apply for one. In this article, we shall discuss certain good repayment habits that can ease the payments on a monthly basis and at the same time provide us with an almost perfect credit score.
Noting down the payment due dates and the amounts due is the first most important habit to cultivate in order to maintain a healthy credit report. Now here’s the thing, in order for any lender to provide us with credit it’s important that they are assured that they will be able to get back the money that they loaned out in time. One good way to do this is by applying for an automated giro deduction to pay off the owed debt every month so that we lower the chance of overlooking or missing out on payments.
By sticking to a given timeline and by paying the full amounts due, we give lenders a clear and concise understanding that we are actively seeking to pay off the credit or debt that we took on and it also gives them the understanding that we have not overstretched ourselves in terms of our monthly financial obligations. In doing so, we are seen as ‘good paymasters’ and this would lower risk on defaults which is one key factor of consideration for financial institutions before loaning out money.
Secondly, it’s always a good habit to pay off loans/credit with the highest interest rate. Even responsible borrowers may sometimes see themselves in an unforeseen situation of overwhelming payments in the event of a personal crisis, for instance, job loss, unanticipated large ticket purchase, etc. In such times when we are faced with allocating a sum of money towards our debts, it’s of paramount importance that we pay the loans/credit with the highest interest rates first.
A good example of this would be credit cards prevailing rate of interest. In the past 10 years, we have noticed an alarming rate of credit card applications and usage. With the ease of online purchases and increase in global affluence, credit cards have become a part of many individuals spending culture. It’s not uncommon to see most working professionals with at least 2 or more credit cards these days.
With the ease of spending, many might see themselves in an unusually tight situation which may leave them with an inability to pay the total amounts owed to credit companies. When this happens, do not panic. List down all the amounts due and the interest rates, late fee charges, and any other fees that would be incurred. That way, we can look to clear off the ones with the highest interest rates first.
However, if we cannot make the full payments at all, it is important that we pay at least the minimum sum due rather than to completely ignore the payment. That way we may be able to incur lesser fees or charges that may arise due to the default in payment. Also, seek to pay off the amounts due as soon as possible to avoid additional interest charges. The prevailing interest rate charges on a credit card are at around 25% to 29% per annum. It is unwise to be paying such interest rates in almost any given circumstance.
Next, avoid applying for additional credit cards or unsecured credit facilities whenever unnecessary. Whenever we apply for credit in any form (credit card or unsecured loans), we run the risk of being seen as credit ‘hungry’ individuals. Now may have an adverse effect on our credit reports as credit facilities and lenders would start to question our ability to furnish the payments for the credit we applied for.
The more loans we take, the more our monthly financial obligation would be and this would be a red flag for most credit providers as it would be risky for them to loan additional cash/credit to someone who is already having a tough time servicing their existing loan obligations. This proves to be true even if we have unused available credit to our names.
You might be wondering how and why should unused credit have an impact on us? That’s because, with unused credit, there is a slight chance that we might use it or we might fall prey to the temptation of an additional purchase that might overstretch our finances. As such financial institutions will be more wary of such borrowers’ habits and it will not look good in our credit report.
So, we should always seek to only apply as little credit as possible, and also whenever deciding to cancel any credit facility, it is advisable to cancel the ones that are newer and to keep the ones that have been with us for a longer time. That’s because, whenever a credit provider looks at our credit history, they can note that we have been prompt payers for a long time and that would also allow them to consider us for a long-term loan with a larger sum of money.
These are some habits that we can adopt to maintain a positive and healthy credit report. It is never a good idea to avoid or miss any payments. There are many options and solutions available in any circumstance. Whenever unsure, it is good practice to speak to a financial professional who will be able to provide you with the possible solutions.