A credit risk grade of AA makes it easy to qualify for mortgages and other bank loans in Singapore. Here’s how to earn this score.
Credit scores may not seem important at first. Many Singaporeans get by just fine without ever using small loans.
However, there comes a point in time when major loans are necessary. The most common example is a mortgage, car loan, or education loan. When a large amount of cash is needed during an emergency, a personal instalment loans can also go a long way.
Those who cannot maintain good credit often find themselves deprived of these essential financial tools. Here’s how to improve your credit risk score and get it as close to AA as possible:
How is Your Credit Grade Determined?
Your credit grade in Singapore is determined by a proprietary algorithm – that is, a computer program that tracks your use of credit. At present, any Singaporean can obtain a credit report (which shows their credit grade) from the Credit Bureau of Singapore (CBS) for a fee of around S$6.
Credit Score Risk Grades in Singapore
|AA (Score 1911 – 2000)||Probability of Default between <= 0.27%|
|BB (Score 1844 – 1910)||Probability of Default between 0.27% to 0.67%|
|CC ( Score 1825 – 1843)||Probability of Default between 0.67% to 0.88%|
|DD (Score 1813 – 1824)||Probability of Default between 0.88% to 1.03%|
|EE (Score 1782 – 1812)||Probability of Default between 1.03% to 1.58%|
|FF (Score 1755 – 1781)||Probability of Default between 1.58% to 2.28%|
|GG ( Score 1724 – 1754)||Probability of Default between 2.28% to 3.48%|
|HH (Score 1000 – 1723)||Probability of Default between >= 3.48%|
Source: Credit Bureau Singapore
The highest possible credit grade is AA. Grades of B or C indicate delinquency or late repayments, and grades of D or lower are often caused by defaults (the bank was forced to write off the loan).
Non-Scored Risk Grades
|HX||Public Record (with or without inquiry / with or without trade)
This means there could be a past and/or existing writ of summons/bankruptcy record filed against you
|HZ||Currently 90 + / write off with outstanding balance greater than or equals to $300
An HZ risk grade is accorded when you have outstanding balances >=$300 and have accounts loaded in any of the following status:
|GX||Inquiry record only (no Public Records / No Trades)
This means there is only self-enquiries and/or enquiries made by banks when there is no credit file.
|BX||Only inactive trade, “Other”, Bridging Loan, or Margin Trading account present
This means either all your accounts are closed (with or without balance) or you only have bridging loan or margin trading account or accounts that are loaded as ‘Others’ by your lender.
|CX||Insufficient Credit Activity
This means there is ‘very limited’ information such as Credit Applications and/or Accounts Status History as such, unable to derive a Score
In addition to the credit grades, there are some “ungraded” credit scores. If you have no history of using loans or credit cards, for example, you will have an ungraded score of “Cx”. Persons who are currently declared bankrupt, or who are facing litigation, may also lack a credit grade (their credit report will indicate their situation).
Why Does It Matter?
For most loans above S$500*, banks will use your credit grade to determine your loan quantum, or how much they are willing to lend you. Note that, unlike some other countries, banks in Singapore seldom vary the interest rate based on your credit grade. If you have bad credit, you will either be given a smaller loan or no loan at all.
This is why it’s important to keep your credit grade healthy. The worse off it is, the less you can borrow for a car, house, your education, etc.
(*Most banks and Financial Institutions do not check your credit grade for loans of S$500 or below. However, there is no guarantee that they will not do so.)
In some cases, a prospective employer will ask to see your credit score when you apply for a job. Some employers (particularly those in the finance industry) will turn down applicants with bad credit.
How to Improve Your Credit Risk Grade in Singapore
To bring up your credit risk grade to an AA (or close to it), you should:
– Always repay loans on time
– Avoid making multiple loan enquiries in a short time
– Do not have too many credit facilities open
– Never default on your loans
– Take and repay a loan to repair damaged credit
1. Always Repay Loans on Time
By the time you receive a second or third letter reminding you of late payment, your credit score would have dropped. This will happen whether or not the bank waives lay payment fines.
For credit cards, always repay at least the minimum sum, before the billing cycle ends. At SingSaver.com.sg, we recommend that credit cards be repaid in full, in order to save on interest repayments.
For loans such as mortgages or personal instalment loans, inform your bank early if you think you may miss payments. Alternatively, speak to a credit counsellor. It is possible that the bank will work out an alternative repayment scheme (debt restructuring), which will do less damage to your credit rating.
2. Avoid Making Multiple Loan Enquiries in a Short Time Period
If you make four or five loan applications within a short span (e.g. a single month), you could be identified as “credit hungry.” This is typical behaviour for someone in financial difficulty, such as someone who has just been retrenched.
Spread out your loan applications whenever possible. If you are trying to find a cheaper loan, use the comparison tools on SingSaver.com.sg to see which ones have the lowest interest rate. Do not send out multiple loan applications and enquiries all at once.
3. Do Not Have Too Many Credit Facilities Open
In general, avoid having more than four to five credit facilities (e.g. personal lines of credit, credit cards, personal loans, and so forth). At any rate, it is inadvisable to hold six or seven credit cards or credit lines. You are more likely to get confused by the various billing cycles, and miss payments.
Always close off credit cards you no longer use, which will also save you paying the annual fee. For personal lines of credit, there is little reason to have more than one. If you find a credit line with a lower interest rate, close your current credit line and switch to the cheaper one.
4. Never Default on Your Loans
If you default (simply don’t pay) a loan, it will appear on your credit report indefinitely. A single major default can make it impossible to ever get a credit card, line of credit, or home loan.
If you cannot make repayment, always seek credit counselling and have your debt restructured. While it will lower your credit grade, it is better than defaulting.
In addition, note that defaulting will result in legal action if you have the money but simply refuse to make repayment.
5. Take a Loan and Make Repayments to Repair Damaged Credit
If you have a bad credit grade, the easiest way to repair it is with small loans. Borrow small sums that you do not actually need (e.g. S$1,000 or under), and repay it in full. Over time, this will repair your damaged credit.
If you currently have a credit grade of B or under, start doing this a year or two before you apply for major loans, such as a home loan. This could bring you the coveted AA rating by the time you send in your application.
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By Ryan Ong
Ryan has been writing about finance for the last 10 years. He also has his fingers in a lot of other pies, having written for publications such as Men’s Health, Her World, Esquire, and Yahoo! Finance.