Most Malaysians don’t care about their credit score. If you are reading this, you are the minority who are proactive. Congratulations!
A good credit score is not a guarantee that you will get your new loan application approved. The reason is that the lenders do look at other aspects before granting a loan such as your debt service ratio (DSR), your occupation, the collateral and the amount of down payment. However, a good credit score is very much required for loan approval.
Most people think that paying bills on time is all it takes to score high, but let’s discover others equally essential matters.
According to RAMCI’s i-SCORE guideline, there are mainly five areas that affect your credit score:
– Payment history
– Legal history trace
– Length of credit history
– Credit limit utilisation
– New credit application
Let’s explore the ways to have a better credit score.
First, you need to ensure you pay all your bills, mortgage, hire-purchase, credit cards, PTPTN, and other loans instalment on time. You also want to make sure that your lenders reported the accurate info to the Central Credit Reference Information (CCRIS), managed by Credit Bureau of Bank Negara Malaysia.
To monitor your payment history, the most important document to refer is your personal CCRIS report. It is free to get your CCRIS report printed at Bank Negara branches, or download it online at https://eccris.bnm.gov.my/
– Pay all bills and loan instalment on time, before the due date.
– If you have missed payments, get current and stay current.
– Check your CCRIS report regularly (at least once a year if not more frequent)
– Examine the latest CCRIS report before you apply for a new loan so that you can tackle it before application.
Legal History Trace
You should not have any record of legal history or bankruptcy, or else it will seriously affect your credit score. If there are any legal cases, get it resolved first.
Length of Credit History
Imagine two adults age 40, Jack and Adam. Jack has a few credit cards, personal loans, car loan and housing mortgage. Meanwhile, Adam never has a credit card or loan because he spends solely with cash.
You will be surprised that Jack will find it easier to get a new loan compared to Adam because Adam faces the problem of not having any credit history.
When you don’t have any record of using any credit at all, especially when you get older, the lenders cannot assess your creditworthiness. Therefore, they will treat you as a high-risk individual.
– When you start working, apply for a credit card as soon as possible.
– If you couldn’t get a credit card, get a minimum amount of personal loan and pay it off accordingly in 6-12 months. Then apply for a credit card.
– Don’t be shy to utilise the bank’s various credit lines such as housing loan, car loan and credit cards.
Credit Limit Utilization
Having a higher percentage of unused credit available gives you a higher score.
For example, if all your credit card limits combined is RM100,000, and your outstanding balance is RM80,000, you use up 80% of your credit limit, which is not a good sign.
Similarly, if you have an Overdraft (OD) facility, keep the utilisation percentage low.
In other words, having a higher credit limit helps your score. That’s because you get more room to use your credit due to the higher ceiling!
– Keep your credit utilisation below 30%.
– Call your creditors once a year to ask for a credit limit increase. They usually ask for income proof.
– If you use up your credit cards limit, pay them off every month. It could hurt you if your credit score is pulled at the time you nearly max out the ceiling.
– It is better to have several credit cards even though you just frequently use one of those.
– When you apply for a new loan, make sure you have a low balance on your credit cards and OD before submission. This action will reduce your Debt Service Ratio (DSR) which will increase your chances of getting approval.
New Credit Applications
An inquiry shows up when somebody pulls your credit report. More inquiries on your credit report is not a good thing and will lower your score.
However, it only applies to a hard inquiry by a financial institution. Your action of checking your credit report is considered a soft inquiry and doesn’t post any harm even if you do it frequently.
– Apply for new credit accounts only when you need them
– If you are applying for a mortgage from multiple banks for the same property, submit the application during the same week. It is understandable that similar inquiries pop up during a very short window of 1-2 week is for the same single purpose. So it won’t hurt your credit score.
– If your loan application is rejected, don’t immediately apply for the next one. There must be a reason why your application is disapproved. So take the time to fix the problems, get a better credit score and try again when you are ready.
General Best Practices
– Use each credit cards at least once periodically just to keep it active. It shows that you actually make use of it.
– Keep a small outstanding balance. It is okay if you just pay off the full amount right before the monthly due date because that will not post a zero balance on your cards. But you shouldn’t pay off the outstanding balance every single day or week. That is in fact not healthy because it will show the lack of utilisation when the balance keeps showing zero.
– Having many different types of credit history helps. So you better have a home loan, a car loan, and credit cards even though you have the money to buy everything with cash.
– If you have a big sum of cash, do consider becoming a premier banking or privileged banking customers. You might get a better interest rate and loan package when you need one.
– Lower instalment commitment reduces your DSR. So, stretch your mortgage and car loan to the longest tenure. You can always pay it off earlier if you want. The idea is that this practice allows you to have more flexibility when applying for a new loan as you have more room for DSR calculation.
– Avoid being a guarantor.
– Avoid applying for joint-loan with your spouse or family. You will have a separate quota for DSR and first two 90% loan-to-value residential property financing.