Understand the basics of Credits and Loans
Credit Cards and Loans can come in helpful especially when you are in need to pay off a big ticket item or when you simply do not have sufficient cash on hand. Some of the common lenders like banks and major financial institutions will usually offer a wide range of credit facilities in Singapore that will cater to your individual needs.
Types of credit and loan facilities available in Singapore?
Credit Cards are revolving credit that allows the borrower to continue to use a certain limit without additional interest charges. An individual is granted a maximum amount of credit limit that he or she is able to utilise from. The available credit limit will decrease as new purchases are transacted onto the Credit Card.
Credit Cards can be broadly categorised as Secured and Unsecured borrowing..
Secured Credit Cards will typically require the borrower to pledge a collateral or open a time deposit account with the bank.
Unsecured Credit Card on the other hand will not require a pledge of collateral but the credit limit is largely determined by the individual’s annual income, among other factors. Some credit companies may also grant a temporary credit limit increase to meet higher than usual expenses, such as paying for a wedding, funeral, or hospitalisation.
Unless necessary, avoid applying for such cash advance services as it will also have a detrimental effect on your Credit Score against time.
In contrast, loans are usually disbursed in a lump sum and repaid in fixed monthly instalments over a period of time. Typically loans are used for big ticket items that are not easily paid with a lump sum of cash., The most common loans offered in Singapore are Mortgage Loans, Vehicle Loans or Personal Loans. They usually come with interest rates, especially some Mortgage Loans that are already out of the lock-in period will tend to have a spike or surge in interest rates.
Borrowing beyond your means to repay can leave you struggling financially. Persistent use of credit or borrowing to fuel one’s lifestyle needs can lead further into debt. .
Always consider your existing loan servicing commitments and understand your financial standing before applying for additional loans.
Do not borrow for the sake of repaying another debt as you may risk accumulating a bigger debt from having multiple loans. This may make it increasingly difficult for you to repay in the future.
It is also important to do ample research and clear any doubts with the lenders before you agree to take up any new credit or loan facilities.
Impact to your Credit Report
A good repayment history helps you to build up your credit reputation in your credit report. It is important to always be mindful to make prompt and full payment every month to help improve your credit score. This good habit can also prevent you from paying additional unwanted fees such as penalty late fee or interest charges which may add on to your current debts and make it even more difficult for you to repay in the future.
Here are some tips that you can pick up:
1. Arrange all your existing credit facilities to have the same billing cycle so you do not miss out on any important due dates
2. Set up monthly GIRO deduction so payments can be paid off directly from your debit or current account
3. Keep to a couple of needful Credit Cards only and cancel excessive numbers of Credit Card accounts
Maintaining a good credit reputation can make it easier and faster for you to obtain loans in the future as well, especially when you need fast cash in unforeseen situations like - paying for big hospital bills or arranging a funeral.
Where can I get a copy of my credit report?
To check your credit score, you can purchase a copy of your credit report at Credit Bureau Singapore.
You can also view a sample credit report with detailed explanation here.
Lastly, be sure to like and follow our Facebook and LinkedIn page for more useful content and tips to maintain a good credit reputation!
Contributed by Credit Bureau Singapore
Published 22 July 2022.