What Your Credit Score Means and How It's Calculated

Imagine walking into a bank, eager to secure a loan for your dream home or start your own business, only to be met without an approval from the lender. The reason? Your credit score. Does this number play a pivotal role in shaping your financial future? What exactly is a credit score, and how is it determined?

Your credit score isn't just a number - it's a reflection of your financial habits, influencing your ability to borrow money. A strong credit score opens doors to better financial opportunities, while a poor one can make borrowing more difficult.

In this article, we’ll break down how credit scores are calculated, the factors that influence them, and actionable steps you can take to improve and maintain a healthy credit profile.

How is A Credit Score and How is it Calculated?

The credit score ranges from 1000 to 2000, with 2000 being the highest  creditworthiness and 1000 being the lowest creditworthiness.

The numeric score can also be represented in risk grades ranging from AA to HH. For example, numeric score above 1911 would be graded AA, representing a default probability of 0.27% or less. Conversely, a numeric score of 1723 and below would be graded HH representing a default probability of 3.48% or more.

In general, the higher one’s credit score, the lower the perceived default risk will be. However, different lenders have varying risk appetites and thresholds for unsecured and secured credit facilities. Hence, they may use different sets of information from the credit reports and other factors, in addition to an individual’s credit score, when assessing applications for new credit facilities.

What Are the Factors Affecting Credit Score?

Credit score is derived mainly from past credit information such as:

- Utilisation Pattern; this refers to how a borrower uses his/her available credit over time.

- Account Delinquency Data; being late on any bill repayment, for any length of time, is considered a possible indication of future non-payment of debt and has more adverse impact on the credit score.

- Credit Account History; a person with longer established credit history is deemed to be more favorable or reliable when compared to one who has limited or no credit history. Consistent and prompt repayment records also boost one’s credit score.

- Available Credit; this refers to the number of accounts available (open or active) for credit.

- Recent New Credit Applications; Excessive increase in loan enquiry activities within a very short period of time may indicate that the person’s debt exposure is likely to increase and hence marginally affecting the credit score.

What can I do to improve my credit rating?

Bear in mind that there is no fast-track way to rebuild or repair damaged credit reputation. We encourage everyone to practice good repayment habits, such as ensuring that you always pay your bills in full and on time. It takes consistent good repayment behaviour over a period of time to rebuild good credit reputation.

Alternatively, you can also subscribe to a personal credit monitoring tool like CBS' My Credit Monitor (MCM). MCM offers the convenience of monitoring one's credit report, providing peace of mind no matter where you are. With subscription options of six (6) or twelve (12) months, along with complimentary credit reports, subscribers receive timely alerts via SMS or email for predetermined activities on their credit report. By reviewing your credit report regularly, it allows you to be aware of any information that is uploaded to your credit file and protects against possible fraudulent use of your personal details to obtain unauthorised credit.

Bear in mind

Maintaining a good credit report is important as it represents a person’s credit standing, which banks take into consideration when assessing customers’ applications for credit facilities. Having a positive credit reputation can prove advantageous, particularly when a person requires financing for significant purchases such as a mortgage or to cover unforeseen expenses like emergency medical bills. When facing cash flow challenges, the inability to access borrowed funds can prompt individuals to make poor financial choices, potentially damaging one’s credit score as he/she seeks alternative credit options.

One should be aware of his/her credit score to keep his/her financial health in check. Information in the credit report can help one to better assess his/her financial situation, identify steps to better manage credit and improve one’s credit score over time.

Having a poor credit reputation may be disadvantageous at times especially when a person is in need of loans. For instance, some lenders may offer loans to lower score borrowers and charge higher interest rate, typically known as risk-based pricing. However, we wish to reiterate that each financial institution has its own risk appetite in assessing applications for loan facilities and takes into consideration other factors including the applicant’s financial and demographic information.

Lastly, follow and like Credit Bureau Singapore's Facebook and Linkedin pages for more useful financial content and tips to maintain a good credit score, or visit the CBS’ website to get a latest copy of your credit report.

Contributed by Credit Bureau Singapore

Published 03 March 2025.