Credit Bureau (Singapore) (CBS) provides individuals with credit reports and credit scores that help the lenders determine the customer's’ credit-worthiness. It also helps the individual manage their debt. A CBS credit report summarises the credit history of a customer, analyses the information and attributes a score and risk grade to the person. It is a 2 to 3-page document that can be purchased by an individual either online or offline, and can be accessed by member-lenders of the CBS whenever a customer applies for a loan.
Credit score is part of the credit report, and usually comes at the end of the document. It is a number that symbolises your repayment capacity and probability of defaulting on a loan. It is usually read in conjunction with the risk grade, which tells the lenders how likely you are to pay back your debts.
Range Of The Credit Score:
The CBS credit score is a 4-digit number that ranges from 1000 to 2000. The scoring system was designed by CBS and TransUnion and takes into account a variety of parameters for computation. The higher your score, the better your chances of getting a loan, because high score indicates good repayment capability and low default risk. The risk grade is a 2-alphabet symbol from AA to HH. If you have no previous debts, insufficient credit history, limited number of accounts without recent update, a prior public record or severe default, then you will not be attributed a score. Instead, you would get non-scored risk grades under HZ, HX, GX, BX, or CX. The risk grade-credit score relationship is as follows:
|Risk grade||Related credit score|
|AA||1911 to 2000|
|BB||1844 to 1910|
|CC||1825 to 1843|
|DD||1813 to 1824|
|EE||1782 to 1812|
|FF||1755 to 1781|
|GG||1724 to 1754|
|HH||1000 to 1723|
Each score and risk level indicates the probability of the customer failing to repay the loan. The risk description of each risk grade and credit score indicates how likely a customer is to repay the debt and close the account without hassles.
How Is The Credit Score Calculated?
The credit score is a numerical representation of your credit report. It indicates your credit status and risk levels. It is computed through an algorithm that considers the financial data available in your credit file. It is a complicated calculation factoring in your ongoing debt, existing dues, delay in repayments, previous defaults, repayments and debt amounts, number of enquiries made, bankruptcy data, participation in debt repayment scheme, credit limit availability, etc.
The main components taken into account while calculating credit score are:
- Credit account history: If you haven’t borrowed much in the last 12 months, it is not possible to judge your creditworthiness efficiently. Someone who has borrowed money before and made repayments correctly and on time is considered to be a better customer than one who has insufficient or no history of loans. Details of credit repayment for the most recent 12 months play the most important part in determining your score.
- Credit exposure: If you have taken too many loans of late or applied for many loans, it suggests the possibility of you being unable to repay all the current loans. Lenders could see this as you over-extending yourself.
- Account delinquency data: If there are late payments of your monthly repayment instalments or the agreed payment frequency, it suggests tardiness and a possibility of not completing the repayment of the loan.
- Adverse credit history: If you have several defaults throughout the loan tenure/s, it indicates high risk of you not being able to repay the borrowed amount.
- Lack of clean repayment history: If you have defaulted on several payments in the past 12 months, even if your last few payments have been done on time, the history would be considered unclean.
- Report enquiries: Each time a bank seeks the credit report of a customer, a record of it is made in the credit file. More requests for loans indicates that the person is trying to borrow heavily, which could mean that their repayment capacity is uncertain.
A credit score is calculated purely on the basis of your financial data and does not consider parameters such as age, gender, nationality, income, location or employment history.
Factors That Can Damage The Credit Score:
Your credit score can be low, or decrease further, due to several reasons. Among the top causes of low credit scores are:
- Heavy debt: If you have borrowed heavily in the past, have a lot of loans to pay off currently, or have high outstanding dues in your credit card accounts, your credit score will be adversely affected. This is because having too many loans jeopardises your ability to repay each of them. For example, if you have debts of over S$20,000 and are seeking another S$2,000, then it is possible that you are overstepping your repayment capacity.
- Repayment delays and defaults: If you have a history of delaying repayments of loans/credit card bills or missing payments, then your credit score will be low. Bad repayment behaviour indicates the possibility of you repeating similar conduct in the future.
- Bankruptcy records: Bankruptcy and entry into debt repayment schemes shows that you have little or no means to repay your debts. Having a public bankruptcy record harms your credit score significantly. However, if the bankruptcy record is very old and you have repaired your monetary status in the meanwhile, then the impact of bankruptcy on credit score would go down.
- Too many enquiries/applications for credit: Every time you or a lender requests for your credit report from the CBS, it is recorded in your credit file. Usually, credit reports are sought only when a customer applies for a loan. More number of enquiries means that the customer has been seeking many loans. Each application, therefore, brings your score down.
- Lack of credit history: If you are a debt virgin, not having borrowed money or owned a credit card earlier, the CBS has no way of determining what your credit risk levels are. It cannot determine whether you are a safe customer or not. So when credit history is insufficient, the bureau gives no credit score to the customer.
Apart from this, if you have a joint loan account with a family member (parents, siblings, spouse or children), and the other party defaults on the payment, delays payments or is declared bankrupt, then your credit score also can go down.
Factors That Can Improve The Credit Score:
The credit score is not a constant number. It can change as and when you modify your credit behaviour. A low score can be improved by paying more attention to your debts and their repayment. At the same time, your good scores can come down if you make mistakes such as applying for too many loans within a short time or delaying your credit card bill payments frequently. Here are some ways to improve your credit score if it is below the satisfactory level:
- Do not delay repayments: If you have monthly or quarterly payments to be made on a loan account or credit card, make sure that you pay them regularly and on time. Just 1 or 2 late payments are enough for your credit score to drop a notch. If you cannot pay the whole credit card bill every cycle, at least pay the minimum bill amount. The more the number of delayed payments recorded in your credit report, the more risky you would seem to lenders in terms of repaying a loan taken.
- Do not make too many loan applications in a short time: Let’s say you apply for 2 or 3 types of loans/credit cards within a span of 1 month. This would show up as multiple enquiries in your credit file, which in turn would represent a high credit appetite that is not considered healthy. Lenders will consider multiple loan enquiries as a sign of your reduced repayment capacity.
- Do not have too many credit cards and loans simultaneously: Are you one of those people who have 5 different credit cards for the various benefits they offer? Or do you have loans and credit cards at the same time? If your answers to the above questions are ‘yes’, then you need to stop giving yourself so much credit exposure right now. The higher your current debt, the less your credit score would be, because you will not be considered capable of paying back all the debt that you own at the moment.
- Do not default on your loans: Being unable to pay a loan is one of the key reasons for a low credit score. Generally, banks would consider a loan as defaulted if the monthly instalment has not been paid for more than 90 days. If you are taking a loan, make sure that you have the resources to repay it.
Good financial behaviour is the key to fixing your credit score, and a good credit score ensures that you are able to get good deals on loans when you really need the money.