Singaporeans, like many people in the world, depend on loans for higher education, travel, wedding or purchase of a car and house, among other things. But with increasing numbers of loan defaults, banks are becoming more and more cautious about lending money. As a solution to reducing the number of defaults many countries, across the globe, have adopted individual risk assessment systems that rates each individual and company against their debts and repayments and confirms whether the person or entity is credit-worthy or not. A credit report contains the individual’s borrowing and repayment history and a final credit score. These credit reports are prepared by Credit Information Companies (CICs) or consumer credit bureaus and are made available to banks and financial institutions to help them assess a loan or credit card application.
What Are Credit Reports & Credit Scores?
A credit report is a summary of your debts and repayments. It consists of an individual or company’s entire credit history and a credit score arrived at on the basis of their financial data. This credit report can either be sought by an individual or by lenders. A credit report contains the following data about an individual:
- Basic personal information without any contact details
- Credit score
- Information about bank accounts
- Credit repayment history for the last 1 year
- Records of debt defaults, if any
- Bankruptcy records, if any, for the last 5 years
- Credit accounts that have been closed or terminated. This will be shown for 3 years from the date the account is reported as closed
- Cumulative outstanding debt
- Cumulative credit limits
- Records of every credit inquiry made on the individual
The credit score is a 4-digit number that tells a lender what your relationship with credit is. It determines your credit-worthiness and tells the lender how likely you are to repay your loan on time. The higher your credit score, the more likely you are to get a loan, as the lender sees you as a bankable customer.
Difference between Credit Reports and Credit Scores:
A credit score is a number between 1000 and 2000 that indicates how good a creditor you are. It is derived from your debt and repayment history, and each credit information company uses it in different ways. Consideration is given to the amount of loans taken, type of loan, duration of loan, current debt, repayment frequency, etc. At the same time, factors such as your age, social or religious status, gender, income, etc. are not added in the score. As your financial behaviour improves, your score also goes up. Regular payment of EMIs, full or partial prepayments made towards a loan, closure of loans, lack of delays in repayment, are some of the points that help you improve your credit score.
A credit report, on the other hand, summarises your financial history and payment consistency. It is the basis for calculation of credit score. It is a one-stop document for your banks to know everything related to your finances. The information displayed in a credit report is obtained from banks and finance house who voluntarily provide the required data to the consumer credit bureaus that they are part of.
In short, credit report is a full-fledged description of your credit history, while credit scores are a number indicating your value as a borrower.
Why Are Credit Reports And Scores Important?
A credit report is a sign of how capable and committed you are towards repaying your debts. Its primary objective is to help banks, financial institutions and credit card companies take the right decision about lending their money safely. When you apply for any kind of loan or credit card from a bank or finance house, they will seek your credit report from the CICs and judge your application based on the information available there. The banks will be able to see how many loans you have taken, how much debt you still hold, whether you have defaulted on any loans, whether you have made delayed payments of EMIs, etc.
However, a credit report does not contain information about your entire life’s debts and repayments. Credit repayment history is available only for the last 1 year, bankruptcy records are maintained for a period of 5 years, and closed debts are mentioned in the report only for 3 years from the time the account is reported as closed or paid off. This means that if you were bankrupt in June 2006, your credit report will mention it only until June 2011, after which that record will go off the report. But information about non-repayment of loan will be available indefinitely, which means that if you have defaulted from a personal loan in 2014, it will be available even in 2025. However, if you have maintained good credit behaviour in the meanwhile, your score will improve and a single default years ago will not significantly affect your credit-worthiness.
If your credit score does not satisfy the lender, they will reject your loan application, and each rejection adds to the negative score on the credit report. So in order to be able to get a loan or credit card without any hassle, it is important that you maintain a good credit score and ensure that your credit report is clean. To avoid multiple rejections and further deterioration of the score, it is best that you buy your credit report and check whether the score is good enough for you to be able to borrow, before applying for a new loan.
Credit Reports for First Time Borrowers:
If you have never borrowed money before, a new file will be opened for you at the consumer credit bureau when you apply for a loan the first time. The report will not give you a credit score and it will be marked as ‘no credit history’. The bank will have no credit data about you to rely on except the income proofs that you submit. In such a situation, it is up to the bank to accept or reject your loan application. If the bank is satisfied that you will be able to repay the loan on the basis of your income, then it will grant you the loan.
How Do CICs Get Credit Information?
CICs receive inputs about customers through their member-banks and finance houses. Public documents such as bankruptcy data are also used to get the necessary information about individuals and companies. Credit bureaus are a storehouse of credit information of every single legal citizen of the country who has a bank account and banking transactions in their name. The Banking Act of 2002 allows consumer credit bureaus to access information regarding debts and repayments from banks and financial institutions, and allows these participating institutions to request credit reports of customers before opening a new loan account.
Who regulates CICs in Singapore?
Credit bureaus in Singapore are not privately functioning agencies. They are monitored by the Monetary Authority of Singapore (MAS), the central bank of the country. MAS lays out the policies and regulations applicable to credit bureaus, and ensures that they are adhered to.
Credit reports are the yardstick with which a bank will judge you, and will be the source of your financial reputation. It is important to understand your credit behaviour and maintain a good credit score in order to be able to secure a loan at the best rates and without stress. It is a good practice to check your credit score at least once a year in order to stay on top of the matter and prevent a rejection at the time of applying for a loan or credit card.
Accessing Your Credit Report
Anyone and everyone cannot access your personal credit report. Your credit report can be obtained only by yourself, or by a bank where you have applied for a loan or credit card. Banks can obtain the data only if they are members of the CIC. You can get the report in two ways:
- When you apply for a new loan or credit card, the bank will obtain your credit report and either approve or reject your application. Once this approval or rejection has come through, you are eligible to get a free copy of your credit report.
- If you want a credit report without applying for a loan or credit card, you can either buy it online through the websites of the 2 CICs or visit their offices in person and purchase it.
What To Do If Your Credit Report Has Incorrect Or Missing Information:
It is possible that some information about your loan status is not updated in the records. It may take a few months for data to be sent by banks and updated on the records of the credit bureaus. Suppose you closed a loan in August 2016 and apply for a new loan in September 2016, the information about the closure of your previous loan may not be updated with the CICs. Because of this, when the bank requests your credit report, your score may be lower than you deserve (if the repayments of the previous loans were made regularly and on time). Additionally, it is also possible that the banks have made a mistake while relaying your credit information, which could lead to low credit scores.
In such cases, you can contact the credit bureau/s and point out the mistake or the missing information. The CIC will, on receipt of such a request from you, check the facts with the bank or finance house concerned, indicate in your credit file that the credit data is under dispute, and let you know of any updates from time to time. If your credit report is revised after an amendment request from you, any organisation that sought your credit report in the past 3 months will receive a new copy of your report.
Who Maintains Credit Reports?
Credit reports are generated and maintained by credit information companies or consumer credit bureaus. Singapore has 2 consumer credit bureaus functioning currently – Credit Bureau Singapore (CBS) and DP Credit Bureau (DPCB). CBS is a joint venture between The Association of Banks in Singapore (ABS) and Infocredit Holdings Pte Ltd, while DPCB is a wholly-owned subsidiary of DP Information Group, of which the international credit reporting expert Experian is a majority stakeholder. CBS has been around in the country since 2002, is “the most comprehensive consumer credit bureau” of Singapore and has tie-ups with almost all retail banks and key financial institutions. DPCB was set up in 2007 and provides premium services in the fields of credit information and business management solutions.