If you are living in Singapore, understanding how the credit score works is the key to becoming financially healthy. Having a high credit score will give you a range of privileges. For example, banks will be keen on offering you loans at low interest rates, credit cards, and other forms of credit. With a good credit score, you will not only get loans easily, but you will also get a greater amount. However, if you have a poor credit score, you will face trouble finding a personal loan. In Singapore, lenders make an assessment of your credit history before deciding on whether your loan application should be approved or not.
Things You Must Consider Before Applying for a Loan When You Have a Poor Credit Score
Credit Score is a four-digit number that lenders use to decide whether an individual can repay his/her debts and what are their chances of going into default. You get a score between 1,000 and 2,000 based on your loan accounts and past payment history. There is a risk grade assigned to a particular score range. For example, if your score is between 1,000 and 1,723, you will be under risk grade HH which means that there is a high possibility of defaulting. On the other hand, if your score is between 1,911 and 2,000, you will be under risk grade AA which means that you have a very low chance of reaching delinquency status.
So if you have a poor credit score, you must consider the following points before you apply for a new loan:
- You must avoid getting stressed about your poor credit score and correct it in a step-by-step manner.
- Think through clearly whether you have the ability to repay a new loan considering that you have a poor credit score.
- Before applying for a new loan examine how you fell into a state of bad credit in the first place.
- This will help you avoid making any more financial mistakes.
- Start paying all your bills on time before you apply for a new loan.
- Take constant steps to enhance your creditworthiness as lenders are more likely to consider your loan application when they know that you are making sincere steps to improve your credit situation.
Ways to Enhance Your Credit Score
Unlike what many people believe, there are ways (both easy and difficult) to improve your credit score. If you follow a disciplined approach and develop healthy financial habits, the results may come by faster. Here is a guide on what you can do to maximise your credit score:
Borrow Only From a Limited Number of Lenders
Avoid getting into a situation where you have to keep track of your personal loans, car loan, home loan, and credit card payments. When you are in such a situation, missing out on even a single payment can be detrimental to your credit score. The sensible thing to do in this situation is to consolidate all your debts and limit your lenders to the minimum number possible. When you do so it is much easier to keep track of your debts.
Pay Your Small Dues on Time
Every single time you delay your credit card payments, you will not only be charged a late payment fee, but you are also likely to be put under the delinquent category which is most likely to have a negative impact on your credit rating. If you know beforehand that you will not be able to make a monthly payment, inform the lender about your inability to pay before the payment is due, and see if you can work something out.
Do Not Unnecessarily Make Loan Application Inquiries
Every time you call lenders and ask them about a personal loan, it gets noted and the more you enquire within a short span of time, the impression you create is that of a person who is desperate for funds. This has a direct impact on your credit score. By making multiple enquiries your intention may be to get the best deal available, but the impression created is entirely different. So you must limit your enquiries and find other ways to get information.
Make Use of Your Credit Cards Wisely
A credit card will give you many benefits as long as you do not misuse it. Make sure you do not get carried away when you use your card at the time of making purchases. When the monthly payment is due, pay the full amount instead of just the minimum amount. When you defer a payment, you will only end up amassing a huge debt and subsequently pay significant amounts as interest.
Ways to Get a Loan with Poor Credit Score
Your poor credit score could be because of various reasons, both avoidable and unavoidable, but that doesn’t mean that you have no chance of getting a loan. Here are some steps that you can take to obtain a loan even with a poor credit score:
Apply for a Loan With a Co-Signer
If you apply for a loan with a co-signer, lenders are more likely to offer you a loan. A co-signer is a third person in the agreement who offers the guarantee to your lender that you will repay your loan on time. A co-signer can be an institution, family member or a friend. Your co-signer will be equally accountable for the loan along with you. When you apply for a loan with a co-signer, lenders will feel more comfortable giving a loan to you even if you have a poor credit history.
Provide a Post-Dated Cheque
If you wish to apply for a loan and you have a poor credit score, you will have to provide a post-dated cheque to your bank. In Singapore, a cashier's order or a banker's cheque provides assurance that the payment will be honoured. The cheque will act as a form of guarantee when you apply for a new loan.
Apply for a Loan with a Collateral
If you have a poor credit score, you can still get a loan if you offer your lender some form of collateral. When you offer a collateral, your loan will be secured and if you do not make repayments on time, your indemnity will be held by your lender. Keep in mind that the value of the collateral will have to be equal to or more than the amount of loan you want.
Offer to Pay a High Interest on Your Loan
Even if you have a poor credit score, some lenders may offer you a loan, but you will have to pay a huge amount in the form of monthly interest. This is because lenders want to minimise the risk associated with offering a loan to a person with a poor credit score. This should be your last option since paying large amounts as interest will hurt your finances.
Maintaining a good credit score is a result of good financial practices. If you already have bad credit, we say damage control is the need of the hour. It will then be much easier for you to procure and get the approval from banks for a credit card or a personal loan.