Your credit score is a number used by banks and financial institutions as an indicator of how you are likely to repay your debts and the probability of going into default.
The Credit Bureau Singapore (CBS) credit score is based on the various types of information in the credit report to calculate a number that estimates your level of future credit risk.
The score ranges from 1,000 to 2,000, where individuals scoring 1,000 have the highest likelihood of defaulting on a repayment while those scoring 2,000 have the lowest chance of reaching a delinquency status.
Your credit score is guaranteed to influence the cost of big-ticket items such as HDB loans, car loans, planning a wedding and even retirement.
Improving your credit score should be a priority. The higher your score, the better your chances of getting the credit you need.
So do you know your credit score? And more importantly, do you know how these credit scores can affect your finances?
Here are five of the most popular credit score myths most Singaporeans have and the correct facts you need to know instead.
Myth 1: My credit score determines whether or not I get credit
Fact: Lenders may use your credit score as a tool to assess your creditworthiness to decide if a loan should be granted.
If your credit score is in good standing, your loan may be approved faster, with higher line assignment and lower pricing.
Lenders will also take into consideration other factors such as the individual’s income, application documentation, existing banking relationship with the lender, the lender’s risk appetite among others.
One thing to note: CBS does not play a part in the lender’s decision.
Myth 2: A poor score will haunt me forever
Fact: Credit repair is possible. A score is a “snapshot” of your risk at a particular point in time.
The bureau score is dynamic and it changes as new information is added to your credit file such as taking up a new HDB loan with the bank.
Your score is a reflective behaviour of your repayment history and it changes gradually as you change the way you handle credit.
For example, a good credit score is derived from paying your credit card bills on time, all the time.
Myth 3: My credit score will drop drastically if I apply for new credit
Fact: If you apply for multiple credit applications within a short period of time, it may have a negative impact on your credit score.
Looking for new credit can equate with higher risk. Always approach credit in moderation.
Myth 4: My credit score will impact supplementary cardholders
Fact: Although primary cardholders are responsible for the usage and payments due on the supplementary cards, the credit report will only show the factual credit data available of the principal cardholders.
The credit history and repayment behaviour of supplementary cardholders will not affect the principal cardholders.
Myth 5: My bad credit will affect my spouse’s credit score
Fact: If you have a joint credit account, these items could affect a score if they appear on your credit report.
It is important that joint account holders understand that his or her repayment behaviour impacts the other joint account holder’s credit score.
A credit account held solely in the name of your spouse cannot impact your credit score if it is not a joint account.