How Does a Personal Loan Affect Credit Scores in Singapore?

The Credit Bureau Singapore (CBS) tracks factors like credit inquiries, payment history, and credit utilisation. If you’re wondering, “How does taking a personal loan affect such factors and impact my credit score?” read on to learn more. 

Exploring personal loan options

When considering a personal loan in Singapore, it's wise to compare offers from various banks and licensed moneylenders. Tools and websites like SingSaver can help you compare personal loan rates in Singapore. 

A pre-qualification check can also be helpful, as it lets you estimate your loan eligibility and potential interest rates without affecting your credit score through a soft inquiry.

>> Read more: How to get a personal loan in 7 steps, a Singapore guide

Personal loan application

Formally applying for a personal loan in Singapore triggers a hard credit check, which can temporarily cause a slight dip in your credit score. Lenders like DBS, OCBC, and UOB perform these checks as part of their application process.

While the impact of a single hard inquiry is usually small, submitting multiple applications within a short period can compound this effect.

Approval for a personal loan in Singapore typically requires meeting criteria such as a minimum income level, stable employment, and a satisfactory credit history as assessed by the Credit Bureau Singapore.

For example, Singaporeans and Singapore Permanent Residents typically need an annual income of at least S$30,000 to qualify for a personal loan. 

Receiving the personal loan

Once you've applied for a personal loan in Singapore, the bank will review your documents, including proof of income and NRIC. If approved, they'll issue a loan offer. 

Upon acceptance, the loan amount is disbursed to your bank account, and a new credit limit for this loan will appear on your credit report.

Initially, getting a personal loan might slightly lower your credit score due to the hard credit inquiry and the addition of a new debt obligation to your credit profile.

Personal loan payments

Making consistent, on-time payments on your personal loan is crucial and will positively affect your credit score over time. This is a significant factor considered by the Credit Bureau Singapore (CBS) when assessing your creditworthiness. 

As you repay the personal loan, you gradually reduce your overall debt, which can improve your debt-to-income ratio and lower your credit utilisation rate, both of which are positive signals to lenders in Singapore.

>> Read more: Top strategies for managing a personal loan and reducing debt in Singapore

Missed personal loan payments

Missing a personal loan repayment, even by a few days, can negatively affect your credit score. Late payments are a red flag for lenders and can lead to a drop in your creditworthiness as tracked by the Credit Bureau Singapore (CBS). 

Defaulting on a personal loan can cause significant long-term damage to your credit score, and this negative record can stay on your credit report from three years to indefinitely. This may make it harder to secure credit in the future.

As such, it’s advisable to create a budget to help you avoid missed payments.

>> Read more: The real cost: Deferring your personal loan payment

How does debt consolidation affect my credit score?

Using a personal loan for debt consolidation in Singapore can be a strategic move to lower interest rates and streamline multiple monthly payments into a single, manageable one. 

In many cases, consolidating high-interest debt, such as credit card balances or other loans, with a personal loan will improve your credit score by reducing your credit utilisation ratio and simplifying your repayment schedule.

In Singapore, options like the DBS, UOB, and HSBC debt consolidation plans or the government-backed Debt Repayment Scheme (DRS) can help with this process.

>> Read more: What is a debt consolidation plan and how does it work in Singapore?