Are you planning to apply for a credit loan in Singapore? The terms of your loan, such as interest rates offered, may be affected by your credit score – so if you have been taking multiple loans or if you have not been repaying your loans on time, do take note.

Here, we will share more about the factors that could affect your credit score and the impact it could have on your loan, regardless of whether you are applying for a bank credit loan or with a licensed money lender.

What is a credit score?

Your credit score is an important determining factor when you apply for a bank loan. The score comes in the form of a number between 1000 and 2000. It is used as an indicator of how likely you would repay your loan. The higher the credit score, the less of a credit risk you are deemed to be.

If you have low credit risk, you may be offered a larger loan principal, a lower interest rate and/or a longer repayment period. The lender may even waive some fees and charges if you have a good credit score.

In Singapore, the calculation of credit scores is done by an independent body known as the Credit Bureau Singapore (CBS). This table summarises the relationship between credit score and probability of default, along with the corresponding risk grade:

Score Probability of default Risk Grade
1911-2000 0-0.27% AA
1844-1910 0.27-0.67% BB
1825-1843 0.67-0.88% CC
1813-1824 0.88-1.03% DD
1782-1812 1.03-1.58% EE
1755-1781 1.58-2.28% FF
1724-1754 2.28-3.46% GG
1000-1723 3.46-100% HH

Banks and other major lending institutions will obtain your credit score using the CBS Credit Report when you apply for a credit loan. You can also obtain your own credit report directly from CBS even if you are not applying for a loan.

What are the key factors that affect your credit score?

Your credit score is affected by several factors and these are the 5 most important ones. By understanding how they work, you will be able to improve your credit score.

Payment history

Your payment history is a good indicator of your trustworthiness as a borrower. Credit loan applicants with no previous defaults and who have always made payments on time are seen as reliable borrowers. Lenders will usually offer them the best terms as a ‘reward’ and incentive for their responsible past financial behaviour.

Length of credit history

Every lender wants to know its customer’s financial history to minimise the chances of approving a bad credit loan in Singapore. If you have been in the workforce for a number of years and have credit card records, credit loan records for personal loans, car loans, mortgage payments, and other related records, lenders would look at these before they make a decision regarding your loan application. Younger Singaporeans and expatriates who lack this financial history could be perceived to be at a higher risk of defaulting.

Credit utilisation

Credit utilisation is the proportion of your credit limit you have already accessed. For example, someone with a $20,000 credit limit who has taken a credit loan of $5,000 has a credit utilisation of 25%. A high credit utilisation figure indicates a high level of debt. Credit utilisation of less than 20% is best and you should strive to never exceed 30%.

New credit

New credit refers to recent applications for loans, credit cards, etc, by the same person. A sharp increase in the amount of new credit can be a red flag for lenders, even if the applicant does not exceed the 20% to 30% ideal credit utilisation range. Instead of applying for several credit lines within a short period, pace your applications over an extended time.

Credit mix

A good credit mix means that the loan applicant has a diverse range of credit lines. For example, the typical borrower might have a home mortgage, car loan, two or three credit cards, and possibly a personal loan. It shows that the person is living a balanced life with typical obligations. Conversely, someone with no home or car but only a string of loan applications may appear to be living a financially risky life.

How does a good credit score affect your credit loan?

A good credit score is a strong financial asset. Here are 5 reasons why you should try to improve your credit score before you apply for a credit loan.

Loan approval

A good credit score assures a lender that you are likely able to repay your loan. This assessment as a low-risk borrower means your loan application will have a higher chance of approval if you qualify. It can be tough to get a bad credit loan in Singapore with banks, but you might find it easier to get your loan approved (despite bad credit) with licensed money lenders with less stringent credit checks.

Larger loan amount

Another benefit of a high credit score is that lenders would be more open to extending larger loans to you. This can be important if you are making large purchases such as property, vehicles or tertiary education that requires you to take a larger loan.

Lower interest rates

Lower interest rates means you pay less for the same loan principal over the same loan term. It is like getting a discount for a service even if there is no sale or promotion on. A good credit score helps you save money on interest while enjoying the convenience of a regular loan. Do also note the different types of interest rates and how they are calculated.

However, be very careful if any financial institution offers you ‘interest-free loans’, as there are often high fees involved.

Longer loan tenure

A longer loan tenure allows you to stretch out your payment over a longer period of time, so you pay less for each instalment. This is a very convenient feature if you are struggling to balance your budget every month.

Possibility of fee waiver

While you are not guaranteed a fee waiver simply because of a good credit score, it is certainly a possibility with good lenders. Just like lower interest rates, this is a monetary reward that allows you to save when you borrow.

Tip for borrowers: Remember to compare credit loans between different lenders so you can find the best rates from the best credit loan company that best fits your circumstances.

Get easy approval credit loans with Galaxy Credit

Are you looking for a credit loan but worried about your credit score?

At Galaxy Credit, our loan applications undergo less stringent credit checks as compared to banks, and you may get a loan approval even with a bad credit score. We provide a seamless, fast and secure online application process.

Apply for a loan with us now.