What Is Credit and How Does It Work?

When people use the term “credit”, they’re usually referring to one of the following:

1. A financial agreement where a lender gives you access to money or goods now, and you agree to repay it later, usually with interest. Think of it as borrowing from your future self.

2. Credit can also mean your borrowing history—a record of how you've managed loans, credit cards, and other debts over time. This information is compiled in your credit report and used by lenders in Singapore to assess how trustworthy you are as a borrower.

In Singapore, your creditworthiness—or how likely you are to repay your debts—is mainly based on your financial behaviour. This includes how promptly you’ve paid your bills, how much you owe, and how often you apply for new credit.

Credit reports

Your credit activity is tracked in a document called a credit report, issued by CBS. It includes:

• Personal information (e.g. NRIC, employer)

• Credit account history (loans, credit cards, etc.)

• Credit applications

• Missed or late payments

If you apply for a new credit facility (like a credit card), you’re entitled to a free copy of your credit report from CBS.

It’s a good idea to keep an eye on your credit reports and report any discrepancies, especially if they affect your credit score negatively. Lower credit scores create many issues, such as higher interest rates on loans and credit cards, smaller credit limits, and lower chances of approval on new card applications.

As such, it’s crucial that you report any discrepancies that could negatively affect your credit score.

Credit scores

When CBS assigns you a credit score, it will range from 1000 to 2000. The higher the score, the lower the risk you pose as a borrower.

While CBS scores are widely used, banks may also have their own internal scoring systems to assess your creditworthiness. They may look at things like your relationship with them, how long you’ve been their customer, your account balances, spending patterns, savings habits, and so on.

Ultimately, your credit score helps lenders decide whether to approve your application, how much to lend you, and what interest rate to offer. Small fluctuations of a few points aren’t usually a cause for concern.

However, a larger drop (e.g. 10 points or more) could signal a problem, such as a missed payment, a sudden spike in credit utilisation, or even unauthorised use of your personal information to apply for credit. If you notice this, it’s a good idea to request your credit report from Credit Bureau Singapore (CBS) to check for any errors or suspicious activity.

» MORE: Does my credit score follow me if I move abroad? 

What affects your credit score in Singapore?

Several factors go into your score. The main ones are:

• Payment history – Missed or late payments can pull your score down.

• Credit utilisation ratio – Using a high percentage of your credit limit can be seen as risky.

• Length of credit history – A longer history of responsible credit use is a good sign.

• New credit applications – Too many in a short time can raise red flags.

• Types of credit used – A healthy mix (credit cards, loans, etc.) shows you can handle different kinds of borrowing.

In Singapore, credit is used for everything from big-ticket items to emergencies. These include HDB or bank home loans, renovation loans, study loans, auto loans, and applying for credit cards.

Credit can also come into play when renting a flat (some landlords may ask for a credit check) or even in certain job roles—especially in finance—where employers want to know you’re financially responsible.

And when cash is tight? Credit can be a useful safety net for medical bills, home repairs, or other unexpected expenses, just be sure to use it wisely.

In short, maintaining a good credit score is of paramount importance for not just loans, but also as a reflection of your financial savviness and responsibility.

Credit isn’t one-size-fits-all. It comes in different forms based on how you borrow and repay.

Revolving credit

This type of credit lets you borrow up to a certain limit, repay what you can each month, and borrow again. The most common example? Credit cards.

For instance, if you use a UOB Lady’s Card or OCBC 365 Card, you’ll be given a monthly credit limit. If you don’t pay off the full balance, interest starts to pile up, so it’s best to pay in full whenever possible.

Instalment credit

Instalment credit involves borrowing a fixed amount and repaying it in equal parts over time. You’ll see this with car loans, HDB mortgages, renovation loans, etc. The fixed structure makes budgeting easier since you always know what to expect each month.

Service credit

This includes bills you pay after using the service, like electricity from SP Group or mobile data from Singtel or StarHub. While they don’t seem like credit products, late or unpaid bills can still end up in your credit report if they’re referred to debt collectors.

A good credit score can make life easier and more affordable in Singapore. They grant you access to benefits like higher credit limits, faster approvals, and better interest rates on your loans, saving you money on home, car, or personal loans, just to name a few.

And in emergencies? Good credit helps you get fast approvals and negotiate better terms when you really need help, like urgent medical expenses.

Whether you’re starting from scratch or looking to improve, building credit in Singapore may take some effort, but it’s very doable.

If you don’t have credit but are looking to build it

• Apply for a basic credit card with a low limit, then use it monthly and repay in full.

• Use Buy Now, Pay Later (BNPL) options like Atome or ShopBack PayLater responsibly. If reported, your behaviour here can impact your credit profile.

• Secured credit cards are another option. With these cards, you deposit a fixed amount as collateral.

If you have credit but want to strengthen your score

• Always pay on time. Even one late payment can ding your score.

• Keep your credit utilisation low. Aim to use less than 30% of your available credit.

• Avoid applying for multiple loans/cards within a short period.

• Check your CBS credit report at least once a year to ensure it’s accurate.

• Keep older accounts open if you’re not paying fees, as it helps lengthen your credit history.