5 Beneficial Steps to Maximise Your Credit Score

The level of and changes in your credit score can have a surprising impact on your everyday life

• A credit score is a tool often used in deciding how likely it is that you'll pay the lender back as agreed.
• A good credit score puts you in a position to be offered the following: lower interest rates, credit cards, personal, business and student loans. Also, it may increase your employability!
• To get and maintain a good credit score, focus on paying bills on time, not applying for credit too often, having a low (ideally zero) utilisation rate, and a desirable average length of credit history.

5 Steps to Maximise Your Credit Score

1. Make Payments on Time

Making your payments on time and in full demonstrates that you are a responsible borrower. Making payments on time is not only for loans - but all your bills, including for your phone, utilities, rent and anything medical. Altogether, these typically impact your credit score more than any other information in your credit report.

As such, take note of your repayment dates and make sure you have enough money available to pay each of them ahead of those dates! A recurring entry in your phone calendar would be a useful way to keep track.

Looking for an alternative? Consider using GIRO (General Interbank Recurring Order) where possible, to make sure payments arrive on time. For this, you’ll need to have the money in your account. 

2. Credit Utilisation

The ratio of debt to your credit. This is the second most influential of the credit-score factors. Working down your credit card balance to a low utilisation score will improve your credit score. Ideally, you should aim for a debt-to-credit limit ratio between 0 to 20%. For example, if you have a card with a $1,000 limit and a $200 balance, your utilisation rate is 20%.

Tip! You shouldn’t cancel your cards, or other credit lines, once they are paid off (unless you are paying fees). This decreases the credit available to you, worsening your debt-to-credit limit ratio since they use all your balances and credit limits added up. As a result, you could find yourself paying off credit cards but see your credit score getting lower. 

3. Length of Credit History

Data shows that consumers with longer credit histories are less risky borrowers. As such, think twice before closing the accounts of old credit cards in your wallet, or opening numerous new lines of credit. Both of these actions will lower the average age of your credit lines. You can keep your older credit lines active by making small purchases on them every now and then (and paying them off quickly).

4. Number of Credit Lines

Try limiting the number of credit lines you have open. This includes mortgages, car loans, credit cards, education loans and personal loans. Also, put a limit in place for manageability purposes. Keeping on top of your credit becomes much easier when you only have a couple of credit cards. Trying to access a lot of credit in a short space of time signals a risky lender to the potential borrower.

5. Have a Sensible State of Mind When Dealing With Credit

Put in the work to maintain a clean credit report, but don’t open new lines of credit just to boost your score. Do not become obsessed with your credit score, as you'll become distracted from achieving other financial goals.

Any default and bankruptcy proceedings are permanently displayed in your credit report, so be aware of this before you start opening credit lines.

You can find these details in your credit report.

Here are some codes for you to look out for: 

• W: default by a Member. W is the worst code you could see and is permanent on your credit report.

• R or S: the bank has shut off the credit facility, and the restructuring of the outstanding balance has occurred.
• H: involuntary shutting down of the account with an outstanding balance.

On top of the factors already discussed, here are a few others that don’t matter to your credit score – but may affect your ability to obtain credit:

1. Employment history – where you work and how long you have worked do not impact your credit score. Some creditors will have employment requirements, but your employment history does not affect your score directly.
2. Interest rates on debt – it is important to pay off debt, but the interest rate itself is not a factor that will come up in your credit report.
3. Savings account balance – you may be relieved to know that your bank balance is not recorded as part of your credit history! After all, bad credit scores are not exclusive to people who struggle financially.
4. Your age - credit scores do not discriminate by age, though obviously, there is an impact regarding the length of your credit history.
5. Where you are located – you can live anywhere and have a good credit score and credit report. Although your credit history may not follow you abroad, your debt will! 

It’s good to regularly check your credit reports and scores and to take appropriate action for any red flags that may come up.

HOW TO MAXIMISE YOUR CREDIT SCORE. COMPLETED. ✅

Sources

1. https://www.moneysense.gov.sg/articles/2018/11/credit-reports-and-creditworthiness 
2. https://www.self.inc/blog/5-components-of-a-credit-score 
3. https://www.experian.com/blogs/ask-experian/credit-education/score-basics/ 
4. https://www.myfico.com/credit-education/whats-in-your-credit-score 
5. https://www.thebalance.com/the-affluent-millennial-money-study-4778597
6. Cover photo from Unsplash