Adulting: What is Credit Health, and Why Should I Care?
This article was contributed by Credit Bureau Singapore and edited by The Blue and Gold.
Someday, not too long into the future, we’ll wake up and find ourselves full-fledged working adults. Adults with actual responsibilities. Adults who are required to know adult things. In this series, we aim to tackle some of the anxieties and confusion we might face as we ascend from the bliss of adolescence into the abyss that we call adulthood.
The concept of credit might be one of these stress-inducing terms. I mean, it certainly sounds scary, and we certainly can’t use it to bid for our modules. In this article contributed by Credit Bureau Singapore, experts take us through what credit health is, why it’s important, and how we can improve it – so adulting becomes just a little bit easier for us all.
If it has ever crossed your mind how big you want your house to be, what kind of car you want to drive, or how large a business you’d like to run in the future, credit score is something that will definitely be relevant to you.
Some adults might not even know that they have a credit score to maintain until they have been notified by credit lenders that their loan applications have been rejected. That’s why we want to prepare you before you step into the workforce.
But first, back to the basics…
What is credit?
Simply put, credit is the agreement between the lender and the borrower. It allows the borrower to obtain goods and services in advance, before making repayment in a later date set by the lender. Every individual who has applied for a credit facility (i.e. a flexible type of loan that can be used for multiple purposes an extended period of time) in Singapore will have a credit score.
Your credit report is a summary of all your personal credit facilities and total credit limit across all retail banks and major financial institutions.
It is a detailed record of your credit history, and includes detailed personal information, information about credit accounts and public records. This credit report allows lenders to assess your credit health and creditworthiness (i.e. how trustworthy you are to loan money to) through banking data contributed by Credit Bureau Singapore members.
The report is inclusive of all credit facilities contributed by banks and major finance institutions, some examples are: Secured/Unsecured Credit Cards, Personal Loan, Mortgage Loan, Car Loan, and Renovation Loan.
How will it affect me directly?
Through this report, credit providers such as banks or financial institutions will pre-assess your credit file before approving any loans to you. This helps them to make better lending decisions quickly and objectively. Consumers with poor credit score are likely to have lower chances of getting approved for a new loan, as this will indicate a higher probability of defaulting future payments.
Why should I care?
What many do not know is that employers use this credit report during pre-employment screenings too! Employers may wish to evaluate the individual’s credit health before eventually determining the employability of the potential candidate. A poor credit score or report serves as an indicator that the employee might be financially irresponsible, hence putting the employee in a disadvantaged position.
How can I improve my credit score?
Spend within your means only
The number one rule is to always spend lesser than what you are bringing home.
Make a spending plan or sign up for a savings account if you really wish to stay committed. Be prepared to have at least 3 to 6 months’ worth of rainy day funds to cover your essential daily expenses.
Stay alert on your payment due dates
Track all your credit facilities and bank statements, and note down the final payment due dates. Try not to rely on your own memory (especially if you own many credit facilities) lest you get caught by surprise. You may end up missing out a payment or two, which is entirely likely if all your credit facilities have different billing cycles.
Use a credit monitoring service – ‘My Credit Monitor’
My Credit Monitor (MCM) is a subscription service tool that helps you to keep an eye on your credit report on your behalf so you can have an ease of mind wherever you are. MCM will alert you to changes and send you notifications for any predetermined activities on your credit report, providing the earliest possible indicator to take action via SMS or email.
What will bring down my credit score?
Applying for too many credit facilities
We know how exciting it can be to own your first credit card. However, it is important to avoid applying for too many credit cards at one go, as credit lenders might perceive you as desperate or hungry for cash. Unless necessary, try not to apply for too many credit facilities within a short period of time, as it will also have a detrimental effect on your credit score.
Pay the minimum amount
Understand the repercussions if you make only the minimum payment or end up missing your payments. Your balances will snowball with the prevailing interest rates, making it more difficult for you to settle remaining payments in the future.
In short, having a good credit reputation is just like having a good resume. It is especially vital for fresh graduates or job seekers as employers will usually conduct credit checks during pre-employment screenings.
Where can I get a copy of my credit report?
There are several ways you can get a free copy of your credit report at the Credit Bureau Singapore website. For instance, first-timers applying for a new credit facility will get a free credit report for free. Alternatively, you may purchase a copy of your credit report for a small fee of SGD$6.42 here.
Are there any other parts of adulthood that confuse you or shiver your timbers? Leave us a comment below (or write to Dear Madison) and we'll work at alleviating those fears an article at a time.
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