Name the habits that usually weaken or strengthen a credit record over time.
Keep your lesson 1.1 list open while you read. It lists every card, loan, credit line and instalment plan you have held in the last three years. You can test that history against four habits now, before you request your report. These habits decide much of whether a Singapore credit record sits near the low-risk end of the Credit Bureau Singapore (CBS) risk grade or moves away from it.
CBS does not publish the exact formula behind its risk grade, so be suspicious of anyone who claims to know it. The kinds of behaviour that push a record towards or away from low risk are well understood, though. They are covered below in order, from the one that does the most damage to the one that is slowest to help: paying late, running cards close to the limit, making several applications in a short time, and building up clean months that repair a record.
Repayment history is at the centre of your credit report. Every month, each lender that reports to CBS records whether you paid as agreed. Paying a few days late leaves a small mark. Falling one month behind, then two, then three, leaves a far larger one. The most serious entry is a default or write-off, which means an account stopped being paid entirely.
How much harm a late payment does depends on two things: how far behind you were and how often it happened. One missed due date counts for less than months of arrears. Lenders price patterns, and lateness every few months looks like one, while one late month among years of on-time payments looks to a lender like a slip.
Late payments often have nothing to do with a lack of money. Common causes are a statement going to an email address you no longer read, a forgotten due date, or a GIRO arrangement that stopped when you moved to a new bank account. For this reason, Lesson 2.3, "Cash advances, late fees and other costly card charges", suggests setting your cards to pay automatically.
A record full of on-time payments can still worry a lender. If you owe most of your available limits, you look close to the edge of what you can borrow, even when you pay every minimum on time. Say you have S$10,000 in limits spread across your cards and your balance regularly sits at S$9,000. Lenders read heavy use of limits like this as a sign of stress because it often comes before trouble, since people who are about to fall behind usually lean harder on their cards first.
Owing a small share of your limits, and paying balances down each month so you don't carry them over, sends the opposite signal. Of the four behaviours, this one responds fastest. Your CBS report shows the amounts outstanding on your credit cards and credit facilities, combined into aggregate balances, so paying those amounts down lowers the figures on your report. Modules 2 and 6 cover how to bring balances down.
When you apply for credit, the lender may check your report. Your report keeps a record of the enquiries made on it, called enquiries, and that record includes the checks you make on your own report. A single enquiry is normal. Several enquiries close together form a cluster on your report. Two card applications in the same week would form one. So would a run of loan applications to different banks after one bank has refused you. A lender looking at a cluster may wonder why you want so much credit so quickly, or whether other banks have already turned you down.
Applying for a card to get the sign-up gift leaves the same trail as applying because you need the money, and nothing on the report tells the two apart. Only apply for credit you plan to use, and leave gaps between applications. When a bank says no, find out why before you apply elsewhere, as Lesson 1.2, "What lenders look for besides your report", advised. CBS decides how long enquiries stay on your record, and its website gives the current period.
Clean months are the slowest of the four behaviours and the only genuine repair. Once late payments stop, each on-time month adds another clean line to your history. As those months build up, older problems count for less against the newer, better record. CBS sets how long each type of entry stays on file.
There is no shortcut. A company that promises, for a fee, to clean up your record cannot remove accurate information, and closing every card you hold does not remove your history either. An accurate record only changes through new behaviour, reported one month at a time. Wrong information is a separate case, and Lesson 1.4 explains how to have it removed quickly.
Priya (an invented example) shows how these behaviours appear on a report. Two years ago, a card statement went to an old email address Priya had stopped checking, so the bill was paid three weeks late. As soon as Priya noticed, the balance and the late fee were paid, and the matter was forgotten. In about the same period, Priya applied for two new cards within one week, mainly for the sign-up gifts. Neither event seemed important at the time, but both now appear on Priya's credit report.
The late payment had nothing to do with money and came from an email address nobody read. The two applications in one week form a cluster of enquiries. Priya's report today shows the late month and the two enquiries from two years ago, followed by about two years of on-time payments that are already slowly repairing the record.
You don't need the report itself to start judging your past against these four behaviours. Return to your lesson 1.1 list of every card, loan, credit line and instalment plan from the last three years, and ask three questions beside each entry:
Did you ever pay it late? How near its limit did you usually run it? When did you apply for it compared with the others?
Whichever two habits keep turning up across your list are the ones to work on first.
Go through your list from lesson 1.1 and compare it with these habits. Write down the two most likely to be affecting your record.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).