4 Effective Habits Of People With Good Credit
Having good credit is crucial. From credit cards, auto loans to mortgages, good credit will not only bring you convenience, but also help you achieve financial goals such as owning that dream house or car.
What exactly does it mean to have good credit?
A credit score is a number that indicates how likely an individual is to repay their debt. Banks and lenders use your credit score to determine if they would approve your credit or loan application. Having a good credit score makes it easier for you to obtain credit and qualify for loans.
Contrary to popular belief, building a good credit score is not extremely hard. Here are a few habits you can practice to start building your credit score.
1. Review your credit report regularly
Your credit report will display your credit score, as well as a record of your credit payment history compiled from different credit providers. By reviewing your credit report regularly, you’ll know where your credit rating stands – this makes it easier to work towards building or improving your credit score effectively if there is any gap.
You can currently obtain your credit report from Credit Bureau Singapore (CBS) at S$6.42 per copy. The CBS credit score is a four digit number ranging from 1000 to 2000 that is derived from your loan repayment history – the higher your score, the lower your perceived probability of defaulting on a repayment.
Monitoring your credit file also allows you to detect possible fraudulent use of your personal details to obtain credit. Detecting fraudulent use earlier will minimise the damage identity theft can have on your credit.
2. Pay your bills on time and in full
Late or missed payments will lower your credit worthiness. As such, you should check your bills regularly so you’ll know when payments are due. If you don’t meet your payments, late fees and interest charges will add up quickly, making it even harder to pay off the debt.
In addition, strive to make full payments instead of just paying the minimum, especially for your credit card bills. Not only will you avoid hefty interest charges, your payment pattern history (which includes whether or not you’ve made payments in full) will be reflected in your credit report.
Your payment history is an important factor used to determine your credit worthiness. Over time, having a good payment record will help build your credit score.
3. Build an emergency fund
Build an emergency fund that covers 3 to 6 months of monthly expenses. You can adjust this amount depending on your life circumstances. For example, if your career prospects are unstable, you may need to build a bigger emergency fund.
An emergency fund can tide you over unplanned periods of unemployment, especially if have a significant credit card or loan balance that you need to continue servicing.
It can also help you to cover any out-of-pocket expenses incurred during unforeseen events like major car or home repairs, ensuring that you do not have to resort to using credit cards or loans to settle your bill.
4. Keep credit utilisation low
Lenders like to see plenty of breathing room between the amount of debt reported on your credit cards and your total credit limit. The wider the gap, the better your credit worthiness. This is why it’s important to avoid maxing out your credit limit and only making the minimum payment to pay down your balance. Not only will your rollover balance be slapped with high interest rates, your credit worthiness will also be affected.
Furthermore, as the outstanding balance continues to snowball, it can reach a point where you’ll struggle to keep up with the minimum monthly payments. If you fail to make your monthly repayment, your loan will be considered ‘delinquent’. Delinquency will negatively affect your credit score.
It’s therefore best to keep your credit utilisation low and spend within your means. This will save you from high interest rates and also help you build your credit score.
As you can see, having good credit is not out of reach. By following these simple steps, you’ll soon be on your way to a good credit score.