I’m going to hand you over to the authorities for a credit check…
Okay, I’m kidding
What I really want to do in this blog is to highlight several important credit rules, the institutions that set them, and some do’s and don’ts that determine your credit worthiness.
Why is good credit worthiness a big deal?
First, being credit worthy is essential if you want to be successful when applying for credit. After all, which reputable lender wants to extend credit to a lemon?
Secondly, having a bad credit record may cost you your job (no kidding!). Indeed, many employers require a credit check on potential hires as part of the recruitment process.
Who determines how credit worthy you are? The short answer is lenders do. Specifically, the banks and financial institutions from which you have obtained credit.They are the ones that keep track of how promptly you repay your credit card bills, personal loans, car loans etc.
All that information is uploaded in a database maintained by the Credit Bureau of Singapore (CBS) initiated by the Association of Banks in Singapore (ABS).
The CBS is one agency you don’t want to mess around with. Its financial database of borrowers is what lenders look into into to perform credit checks each time someone applies for secured or unsecured credit.
At your end, if you own credit cards or borrow any form of loans from financial institutions, your credit history will be recorded in that database and displayed in your credit report. By the way, for a small fee you, can also obtain a copy of your credit report from the CBS.
Your credit report contains many facts about you as a borrower, including one summary number which flags to lenders about the likelihood of a borrower defaulting on a credit repayment. That number is your credit score.
The credit score ranges from 1000 to 2000, where individuals scoring 1000 have the highest likelihood of defaulting on a payment, whereas those scoring 2000 have the lowest chance of reaching a delinquency status. Therefore, you want to be in the highest score range (AA grade).
Many factors go into determining a credit score. Based on these factors, here’s what you do (or not do) to obtain an excellent credit score:
- Do limit the number of credit facilities at any one time. Why? Each time you apply for credit, the lending institution will look into your credit report to perform a credit check. Having too many searches like this signals to lenders that you are taking on too much debt.
- Do not apply for credit facilities within a short period of time as this indicates that you are over-extending yourself.
- Do repay lenders on time and in full. Accounts with prompt payment will boost your credit rating.
- Do establish a consistently good credit record. Having a long credit history of prompt payments will boost your credit ratings.
The timeliness of your debt repayment is reflected in a section of your credit report called “Account Status History“. That section displays information on all your credit repayments on a 12-month rolling basis, with the most current cycle is on the left.
Here are the letter grades to indicate your payment promptness:
There are some common misconceptions about what is captured in the Account Status History.
Only outstanding balances which is due for more than 90 days will be reflected in the credit report.
False – as you can see, any outstanding balance which is more than 30 days overdue will be reflected in your credit report. An overdue account is one where you do not even make the minimum payment by the due date. Payments which are overdue by 30 to 59 days will be marked with ‘B’. Payments which are overdue by 60 to 89 days will be marked with a ‘C’ and so on. Lenders may file bankruptcy proceedings against borrowers with debt that are more than 90 days overdue if they fail to recover the amounts owed despite issuing letters of demand to the borrowers.
Lenders will only file for bankruptcy against a debtor if the amount owed is very large.
False – Under Singapore laws, an individual who cannot repay debts of greater than $15,000 (i.e., relatively small sum) can be declared bankrupt by the High Court.
Once I am discharged from bankruptcy, my bankruptcy record will be removed from the credit report.
False – your bankruptcy record remains in the credit report for 5 years after discharge.
Default accounts with outstanding and partial payment will be reflected in the credit report for 3 years from the date the lender terminated the accounts.
False – default records with the status of Outstanding and Partial Payment, it will remain indefinitely on your credit report. Default records with the status of Negotiated Settlement or Full Settlement will remain for 3 years from the date of settlement.