6 Reasons Your Credit Score Is Bad, Money News


Most of us will never think about our credit score until our credit card application or home loan is rejected.

“Credit score? Does Singapore have a credit score system? Yes, we also have credit ratings in Singapore. It’s not an American reality TV thing.

“But I’ve never seen my credit score before.”

This is a good thing.

If you were able to apply for any credit card you want, take out loans to finance the Singaporean dream – condo, COE and car – without any hitches, give yourself a pat on the back!

All of this was possible thanks to your financial discipline. You have basically managed your finances and your credit well.

1. Consequences of a bad credit score

Imagine one day you decided to be lazy and stopped paying your bills on time. You will end up with a bad credit score.

What are the consequences of a bad credit score? Since you are a high-risk customer (will not pay), the banks will be wary of you. Some expected side effects in Singapore include:

  • Taking out a car loan will become a challenge
  • You may struggle to refinance your home loan at lower interest rates*

2. I missed a refund, will I have bad credit?

If you really missed paying off a home loan because you caught Covid-19 while traveling, don’t worry.

The deterioration of your credit score does not happen overnight.

A missed payment or two may not affect your credit score. However, you will be charged late payment fees.

If you have a good, long-standing banking relationship with your bank, you can call them, explain your situation, and have them waive the late fees.

Nice hor, but don’t try to trick the system. People who work in banks have surely seen enough and can tell if you are unable to pay.

3. I have bad credit. What to do?

However, if you currently have bad credit, look back over the past year and how you may have mismanaged your finances, missed credit card bills, and any other loan repayments.

Also take the time to talk to a friend about your spending habits, motivations, and relationship with money and finances.

Here are the six most common reasons why Singaporeans have bad credit scores. These may seem like common knowledge at first glance, but if you’re lost in your credit loop, check these possible causes one by one:

4. Credit cards: attracted by promotions and rewards

As consumers, we often fall prey to brand marketing communications.

We’re asking for more credit cards than we need just because the current promotion is giving away a pretty cool item for free. Eventually we realize we never needed that second or third credit card.

In order to meet minimum spending requirements, we buy things we don’t need. (Don’t confuse this with a Moneysmart person who knows how to optimize their necessary household expenses with credit card welcome bonuses!)

Money spent without thinking can snowball into major expenses that burn a hole in your pocket.

If you’re new to the credit card game, first identify your basic monthly expenses, lifestyle needs, and wants.

5. Credit Cards: Don’t Prioritize Credit Card Bills

Did you buy that OSIM massage chair or SecretLab office chair on a whim? Do you feel good and enjoy it every day after work?

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Then somehow you forgot the payment and threw it on the back burner.

By the time your credit card bill is due, paying the president now feels like dead weight.

How to handle this? By keeping track of your cash flow.

If you want to play the credit card game (earning airline miles, cash back, or reward points), the rule of thumb is to always have extra cash on hand to pay your bill in full. credit card.

Many of us only pay the minimum amount due on our credit cards. Please ah, do not do that. It’s your highway to a life of bad credit.

6. Credit Cards: Spread Your Spending

Yay, new billing cycle. Time to pass!

If it is you. Your personality type is probably: Spending.

Always stagger your expenses. People tend to overspend during pay week and struggle when unexpected expenses arise later in the month.

It could be your child suddenly falling ill, medical bills, a baby shower for a friend or colleague, a red wedding packet, or your microwave malfunctioning. waves.

Each of these occasions can easily exceed your credit card limit and affect the payment of your bills.

If you are prone to overspending. Try to set yourself a weekly allowance limit and stick to it. This will give you a buffer to spend in an emergency, or even better – to save up anything unused!

7. Credit cards: too many credit cards

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We all love the perks of signing up for new credit cards, but be careful of old credit cards left in your wallet.

If you’re done with a credit card, don’t leave it idle. Annual credit card fees you forgot to pay result in late fees and interest.

These unpaid fees can come back to haunt you and your credit score.

Always schedule a credit card housekeeping day. Cancel all unused cards. Also, having many credit cards in your name can affect your credit score, as it can mean you have a higher need for credit!

8. Credit cards: Spending beyond your means

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Here’s a universal truth: it’s easier to blow any budget than to stick to it.

If you are sensitive to online shopping or the wonderful world of Lazada, it will be useful and realistic to have a realistic monthly purchase budget.

No shame here at all, we all have our vices and things we like to spend. You prefer to have it under control and accounted for.

If you have large items to buy, spread out the purchases instead of placing a massive order. Also set a realistic credit limit on your credit card (a comfortable amount based on your monthly salary).

9. Over-commitment to home loans

It is every Singaporean’s dream to own a private property.

Although property cooling measures have been put in place to keep the total debt service ratio (TDSR) at 55% of the borrower’s monthly income, it is important to understand your own financial situation before making the great madness.

Like insurance, a home loan is a long-term commitment. But unlike insurance, a home loan can only be terminated if you have one (with seller’s stamp duty in the first three years). Are you ready to commit to big monthly installment payments for many years to come?

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What is your priority: the type of roof you live under or the number of vacations you get per year?

If you’re looking to globetrot lavishly, it’s a good idea to keep your fixed home loan repayments low so you have the disposable income to have the experiences you desire.

If you have commitments outside of TDSR such as aging parents and childcare and tuition costs to maintain, it is prudent to commit less than the loan amount you qualify for.

With a comfortable monthly repayment, any spike in home loan interest rates (like the one we are currently facing) would still keep you in good stead. This helps you avoid late mortgage payments or debt restructuring that will lower your credit score.

Getting into debt can be hard to reverse. This can result in the rejection of loan applications or even job applications*. Once your credit score is bad, it will take at least six months to regain your credit rating.

Last advice? Stay disciplined in maintaining good credit while enjoying the benefits of credit.

*Each situation is unique and depends on the Bank’s risk appetite and assessment.

This article first appeared in MoneySmart.

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