• How to improve your credit score using a credit card

    Credit Card BYTES FROM OUR KITCHEN

    Lee recently applied for a personal loan, but it got rejected because the lender did not find his credit score of CX satisfactory. He had not borrowed any money in the last few years, nor did he have an active credit card. This made it difficult for the Credit Bureau of Singapore (CBS) to determine his creditworthiness effectively. If you, like Lee, have a credit score of GX, BX or CX, you need to bolster your credit report before it is too late. Having a good credit score helps when you decide to fund your dreams – of buying a car or house or a lavish wedding – with a bank loan.

    Do's and Dont's for Credit cards

    Things to do with your credit card for better credit score:

    One of the easiest ways to start building your credit report in Singapore is to get yourself a credit card, and use it responsibly. You might wonder whether you will be able to procure a card without sufficient credit history, but most banks may not mind offering credit cards to customers without credit history, unlike the reluctance on giving cards to people with bad credit history. If you have a long-standing savings account or fixed deposit with a bank, you could easily convince them to give you a credit card. Additionally, you might get periodic emails from your bank offering you a credit card; so look out for those and grab the chance when it presents itself.

    Let’s look at the various ways in which you can bolster your creditworthiness using a credit card:

    • Get the right card: Choose a card that gives you enough benefits to offset annual fees and other charges. Even though a bank may offer you a credit card based on your account activity and status, it is good to research properly and ensure that you know all the benefits and the fine print of your card.
    • Don’t get more than 2 cards: It might be cool to fill your wallet with credit cards, but the more number of cards you have, the higher your credit exposure. This means that lenders may hesitate to give you further loans, thinking that your repayment capacity would be reduced due to high credit card usage. So don’t collect credit cards for their joining perks or welcome gifts; get only 1 or 2 credit cards offering good rewards and use them regularly and responsibly.
    • Use the credit card sensibly: Instead of buying all you can on your credit card and exhausting your credit limit, set a budget in line with your income, and don’t overshoot that budget. Of course, an occasional large spend is not a bad thing, but factor in your repayment capacity before deciding what to buy. High credit utilisation is not a good sign, so keep it low – not more than 30% of your card’s credit limit – in order to ensure a good credit score.
    • Go for 0% instalment payment plans for large purchases: Though 0% instalment payment plans and flexible repayment plans are not exactly cost-free, splitting your large purchases into monthly instalments will help you avoid paying the high credit card interest charges on them. These transactions will not earn you any regular cashbacks or rewards, though.
    • Pay your bills on time: Late payments are among the key factors bringing your credit score down. Remember that there is an interest-free period on your card that might last until the due date, and after that interest will be charged on the outstanding amount. Keep a reminder about the credit card bill due date, activate the bank’s SMS alert service, or pay the amount as soon as you get the bill. You may also consider activating auto-pay or ECS payment for your credit card bills if your usage is moderate.
    • Clear as much dues as you can: Do not get into the habit of paying just the minimum payment required every month. The less you pay every month, the more you will end up paying as interest. Clear as much dues as you can each month, in order to avoid piling up the bill and adding up interest charges. It will become difficult in the long run to repay the whole amount.
    • Keep the credit card account active: Sometimes you may feel that you don’t need the credit card. You may have cleared off all dues and not bought anything with the card for a few months. While clearing credit card dues will get your credit score up for a couple of months, low credit exposure will start bringing the score down gradually in the long term. So even if you don’t to buy anything on credit, make at least 1 or 2 purchases using your plastic every month and pay the bill in full. Of course, if the card has a high annual fees or maintenance fees, and is costing you more just to keep it active, it might be better to cancel it.

    Things not to do with credit card for not reducing credit score:

    There are a few things in credit card usage that could damage your credit score. These are:

    • Don’t apply for too many credit cards at the same time. The number of enquiries made reflects on your credit report, and brings the score down. If you apply for 2 or 3 cards at the same time, you will be seen as credit-hungry, and not only will your score come down a notch, but the applications may be rejected.
    • Don’t pile up debt on too many cards. Ensure that you never max out your credit card or keep your credit utilisation too high. If you have more than 1 card, then spread out the utilisation on both cards. You will lose track of payments and eventually the bills will become a mountain that you can’t escape.
    • Don’t make minimum payments. If you pay only the minimum amount required to avoid late payment fees or default charges, then you’re forgetting the fact that the company will slap interest charges on the pending amount, and you will end up paying much more the next month. Pay at least half your bill amount, or pay in full, so that your dues are always manageable.

    It is common to brand credit cards as debt monsters, but anything used wisely is an asset. If you can use your credit card responsibly and avoid accumulating interest charges or debt, you will be able to slowly inch up your credit score that had been lagging behind due to lack of history. It is a better option than taking a large amount as personal loan and attracting interest rates, because credit cards allow you to skirt the interest payments altogether if you make full payments before the due date.

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