Embarking on Life's Opportunities: The Importance of Good Credit Health

Introduction

Maintaining a good credit reputation is important because it shows how reliable you are in paying back debts. This reputation is typically based on your repayment history and helps you get access to loans and other credit facilities.

Your credit score, found in your credit report, reflects your risk level at any given time. It's like your school report card, where your grades show how well you did in your subjects. A good credit score means you’re more likely to get approved for loans and credit cards. Lenders see you as a lower risk, so they are more willing to approve your applications. On the other hand, a low credit score means lenders might be less willing to lend to you, or they might offer you a lesser amount than you applied for.

So, keeping a good credit score is crucial not only for your financial health but also for being able to take advantage of important life opportunities.

What is considered “Bad Credit?”

The credit score is calculated using past credit information to predict future payment performance. It ranges from 1000 to 2000, and it is tagged to risk grades ranging from AA to HH. AA represents the lowest statistical probability of default (0.27% or less) and HH represents the highest statistical probability of the person defaulting (3.48% or more).

People with poor credit scores indicates financial distress and might be perceived to be higher in credit risk. Such persons may face more rejections from credit lenders, especially for unsecured loan facilities. However, each financial institution has their own risk tolerance and criteria for approving loans.

Aside from banks, when you apply for a loan through licensed moneylenders in Singapore, you might also be asked to provide your CBS credit report to help them with their credit assessment.

How can credit health impact me?

Keeping track of your credit health at different life stages helps foster responsible financial behaviour:

1. Young Adults. This group will gain first-hand experience in applying for credit cards once they secure full-time employment. They will learn how to pay their bills and understand the importance of making timely payments. This builds up the foundation level of their credit reputation, which is important in the future for obtaining loans or even securing employment in a relevant finance industry or organisation which values creditworthiness of their employees.

2. Working Professionals and Homeownership. As one progresses in their careers and consider taking on new homeownership, credit health can be a very important deciding factor. Banks and lenders look out for good credit score as part of their credit assessment before determining one’s mortgage approval. A higher credit score often translates to more open doors to better mortgage financing options.

3. Marriage Planning or Starting a Family. This could be the first stage whereby you will see a rise in cash requirements, encompassing expenses for proposal, pre-wedding shoots, venue reservations as well as the other miscellaneous costs that will be involved as you start planning for your wedding. For wedded couples planning to expand their family, whether applying for a car loan to accommodate a growing family or seeking financing for education expenses, a strong credit profile remains relevant especially when you need to apply for credit or loans to manage substantial payments. Couples may also find that joint financial goals are more attainable with both partners actively managing their credit responsibly.

4. Mid-Career Advancement. Seasoned workers may encounter opportunities for career advancement that involve relocation, further education, or investment in business ventures. A healthy credit history facilitates smooth transitions during these stages, providing the financial flexibility needed to seize new opportunities. In Singapore, the recruitment sector is increasingly recognizing the assessment of creditworthiness as an indicator of both responsibility and reliability, even in the non-financial sectors.

5. Retirement and Legacy Planning. Even in retirement, good credit health remains relevant, especially for those with a desire to leave a financial legacy for their heirs. A positive credit history can impact estate planning, making it easier for beneficiaries to manage assets and navigate financial responsibilities. Additionally, maintaining good credit repayment history can be beneficial for retirees who may need to access credit lines for unexpected expenses or healthcare needs.

How can I improve my credit rating?

We encourage everyone to practice good repayment habits, such as ensuring that you always pay your bills in full and on time. As much as possible, avoid leaving negative records, such as delinquency or defaulting on loans as these will have direct adverse impacts on your credit score. It is advisable to always spend within your own financial means and strive to maintain good credit reputation through responsible use of credit.

Bear in mind that there is no fast-track way to rebuild or repair damaged credit reputation; it takes a lot of consistent good repayment records over a period of time to rebuild good credit reputation.

Lastly, follow and like CBS Facebook and Linkedin page for more useful content and tips to maintain a good credit score or visit the CBS’ website to get a copy of your credit report.

Contributed by Credit Bureau Singapore

Published 19 July 2024.