What is a Credit Score and why is it so crucial?
Your credit score is basically what bank use to evaluate the creditworthiness of your finance application. Having good credit scores helps you leverage the banks or firms for lower interest rates and flexible payment period. There are many misconceptions out there about how your credit score is calculated. As cliché as it sounds, it takes years to build a good credit score, but it can also be undone easily. Therefore, you should be aware of what actually takes into account to ensure you can achieve your financial goals.
1. Avoid late monthly payments
Never pay your bills late because being chronically late on your bill payments can have detrimental effects on your credit score. Most people encounter issues on recurring payment date when the last day to pay off your monthly credit card bill falls before your payday and you have to miss the payment dateline on a regular basis. The best way to avoid this matter is to request your bank to change your payment date to match with your payday. Alternatively, keep aside some extra funds for timely payments.
2. Do not miss out loan repayments
Be disciplined in your payments especially if you are an adult. Late credit card and loan payments are stated by banks to Bank Negara Malaysia and will stay in the CCRIS report for a period of 12 months. You are responsible to repay your outstanding payments at least 12 months before applying for a loan or it will reflect on your credit report. This includes PTPTN study loan, unpaid parking summons, and owing telco money.
3. Give Standing Instructions
If you are a person who is either super busy or super forgetful on the payment datelines, give standing instructions to your bank to make those payments for you on a chosen date of every month.
4. Have a credit history
Having no visible credit history can be as bad as having a bad credit score. You may feel that having no loans, overdraft facilities or credit cards will help boost your credit score, but the truth is, banks would not offer a full margin of finance or even accept applicants whose credit profile is blank because they do not have any track record of your past repayment behavior. Try to have at least one active credit facility and pay on time.
5. Time your loan applications
A pro tip for all applicants is to apply for a loan after the system is updated. For example, CCRIS system is updated on the 15th of every month. Applying for a loan after 16th of a month in which all outstanding payments have been made before the end of the previous month helps enhance your credit score.
6. Replacing your MyKad too often
Did you know that a number on the back of your NRIC indicates how many time you have replaced your Malaysian Identity Card? Having too many replacements can hurt your credit score as banks might view you as a thief or at risk for fraud.
7. Avoid making several loan applications at the same time
Multiple loan application might indicate your desperation for funds and could raise unnecessary red flags on your credit report. If your loan application has been rejected by more than one bank, wait at least a year before you reapply for a new loan. Good planning will give you time to gather information and clear your debts before you start to reapply.
8. Avoid sharing a poor financial relationship
Be careful when you are standing as a loan guarantor to friends and family because if they delay payment, you are liable for the debt as well. This will affect your credit score even though it is not your intention to delay payments. This will remain as such until all arrears are cleared.