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Rebuilding Credit after Bad Debts

Rebuilding Credit after Bad Debts

What leads to bad debts?

Bad debt are loans or outstanding balances owed that are no longer deemed recoverable and must be written off. This typically occurs when poor financial judgement was made plus misuse of paying on credit terms that resulted in snow piling of loans. These people loses the financial capability to repay back outstanding bills and unpaid credit lending over a significant period of time.

Who can view your debts record?

Banks and financial institutions in Singapore uses your Credit Report as a reference tool to evaluate your credit worthiness before extending out a loan to you. The Credit Report is a consolidation of all the personal credit facilities that are under your possession, including bad debts repayment records and overdue outstanding balances. Members of Credit Bureau Singapore (CBS) uploads your credit data onto your credit report and uses it to determine your future loans repayment behaviour.

Your credit reputation is crucial and may affect your life, which is why having a good credit score is highly treasured. Let us dive in deeper on how having a good or poor credit report may potentially affect you.

Default records are severely delinquent payments that arises from unpaid arrears. These are written off outstanding loans that were recorded by the CBS members in your Credit Report, however the basis for lenders to file a default record is very subjective to individual bank’s risk appetite. Default records with the status of Negotiated Settlement or Full Settlement will be displayed for 3 years from status date. For default records with the status of Outstanding, Partial Payment and Sold Off, the records will be displayed indefinitely on the report. The definition of Negotiated Settlement, Full Settlement, Outstanding, Partial Payment and Sold Off statuses are subjected to individual financial institutions’ classification.

Rebuild your credit reputation

These are some of the measures and tips you can take to build back your credit reputation after you have settled your arrears:

1. Spend within what you can afford

The most important step to repair your credit score is to prevent yourself from falling back into bad debt again, which means to only spend what you can afford. You might want to start tracking your daily expenses and set out a budget for each category. Practice prudency at all and curb overspending on unnecessary items for example: taking public transport rather than owning a car.

2. Cut off excessive use of credit or loan facilities

The first step to getting out of the debt cycle is to reduce your reliance on using credit facilities to pay for your expenses. Terminate credit facilities that you are not using and instead focus on just 1 or 2 credit products to your advantage, for example - Credit Cards to earn attractive rebates or points that helps you with your savings. However you should always use credit with caution and ensure that you always have sufficient cash to pay off what you owe.

3. Always pay your bills, full and on time

Keeping a good and consistent credit repayment record will also help you to gradually build up your credit score. If you are still able to use unsecured Credit Card, you can start off by making small payments and pay back your bills promptly and in full at all times.

4. Check your Credit Report

It is highly encouraged to review your report from time to time so you are aware of any inaccurate or outdated data that is loaded onto your credit report. Alternatively, you can also subscribe to My Credit Monitor (MCM). MCM is a credit monitoring tool that helps you to keep an eye on your credit report on your behalf so you can have an ease of mind wherever you are. MCM comes with a choice of 6 months or 12 months subscription service and complimentary credit reports. The subscriber will be able to receive notification alerts for any predetermined activities on your credit report, providing the earliest possible indicator via SMS or emails. Hence, you will always be notified should there be any new information loaded onto your credit report.

Lastly, where can I get a copy of my credit report?

To check your credit score, you can purchase a copy of your credit report from Credit Bureau Singapore.

For a detailed explanation of a credit report, you can view a sample credit report with explanatory notes here.

Be sure to like and follow Credit Bureau Singapore on Facebook and LinkedIn for more useful content and tips to maintain a good credit reputation!

If you are facing increasing difficulties servicing payments to your credit cards or other unsecured credit facilities, consider attending our weekly Debt Management talks (conducted both over Zoom and in-person at our office), where you will learn more about what to do, when and how to communicate with creditors, what are the common collection actions creditors can take, what are the various debt settlement options are and what is the CCS Debt Management Programme. Click here for schedule.

After attending the talk, you can submit a request for one-to-one credit counselling. Details on the counselling session and instructions on how to arrange for an appointment will be explained during the talk.

Published 27 January 2023.