When you apply for any financial product or service with a bank or financial institution, there are a number of factors that will affect your application approval or rejection. Your credit rating or credit score is one of the most important factors. A good credit history can go a long way in maintaining a favourable relationship with a bank.
Here are some tips for maintaining a good credit rating:
Always make sure that you pay your bills on time. Do not wait until the last day to make a payment. This goes for all bills and not only your credit card payments. This is because any late payment will be reported to the credit bureau and will invariably end up on your credit report. If your credit history has even a few late payments recorded, it will lower your credit score. It is not only important to work towards getting a higher credit score, but also maintaining your credit score and timely payments will help you do just that. If you are having trouble in keeping track of all your payment due dates, then sign up for automatic payments or try the balance transfer facility which will consolidate all your existing debt and generate a single bill each month.
Owning too many credit cards will tell your lender that you are unable to manage your debts and instead have to rely on your credit card for payments and future expenses. If you wish to cancel any credit cards, it is advisable to cancel the newest credit cards because they will add little value to your credit history in comparison to your old ones. The longer the credit history, the better your application will look and your oldest credit cards will give your credit report the needed credit history of timely payments and a picture of your debt management. This will definitely help in boosting your credit rating.
If your credit card outstanding balance is very high, it will adversely impact your credit rating. Try to clear your outstanding balances by making full payments month-on-month. However, if you are unable to do so, then do not stick to only making minimum due payments as they will not only reflect poorly on your credit record, but also snowball your interest payments. This can land you in deep debt in the future. Always try to pay more than the minimum due so you can clear off your credit card debt faster. Also, ensure that you do not spend over your credit limit as you will incur an over limit fee which will get recorded on your credit report and lower your credit rating.
Every time you send an application to a bank or a financial institution for a credit card, loan or any other credit line, it gets recorded by the credit bureau. This is because when you send an application to a bank, they will contact the credit bureau for a copy of your credit history. Multiple enquiries by banks will lower your credit score and lenders will perceive you to be a potential risk. They might worry that you are trying to escape your existing debt by applying for multiple lines of credit and are unable to manage your expenses and or/debt.
Most loans are long term commitments as you will take years to repay them. You might have gotten the best rates at the time of applying for your loan. But banks revise their rates and packages from time to time and it is better to keep an eye out for revisions that might work in your favour. If you can find a loan offer at a lower interest rate than what you are currently paying, you should consider refinancing your loan as it can help you save significantly on interest payments as well as shave a few months or years off your loan tenure. This will help you manage your debt better and improve your credit rating. Additionally, your savings on interest will increase your purchasing power. However, watch out for prepayment penalties and other hidden fees and charges before you refinance your loan.
MAS (Monetary Authority of Singapore) announced the TDSR or Total Debt Servicing Ratio in 2013 which helps banks better assess the repayment capabilities of applicants. The current TDSR is 60% which means that at any given moment, your total debt (credit card payments, loan payments, other bills payments, etc.) should not exceed 60% of your gross monthly income. The higher your TDSR is, it is more unlikely that lenders will approve your application. Furthermore, high TDSR will also jeopardize your credit report and rating.
You might have done everything right to maintain a good credit rating but everyone makes mistakes. If your credit report has an error, it will invariably lower your credit rating through no fault of your own, except that you did not check your report. It is best to get any errors on your credit report rectified as soon as possible. Another reason to keep a watch on your credit report is to check for instances of credit card fraud or identity theft which can drown your credit rating instantly.
By keeping a check on these factors, it will not only help maintain a good credit rating but also help improve your credit score. A good credit score will help you maintain an excellent relationship with your bank and will help you get the best rates and packages on all your future applications.