In Singapore, the majority of businesses turn to business loans when they need working capital for growth. However, what many may not realize is that their ability to secure a loan hinges on the shareholders' credit score. In this informative piece, we delve into the Credit Bureau Singapore (CBS) report and the concept of a credit score and provide insights into maintaining and improving it.
A credit score is a numerical representation of an individual's creditworthiness, calculated based on various factors such as loan applications, credit bureau reports, and performance on existing loans. This score serves as an estimate of the likelihood that an applicant will repay a loan successfully. Typically, credit scores are presented as a range of values, for instance, 1000 to 2000. Individuals with lower scores are more likely to default on payments, while those with higher scores are deemed more reliable borrowers.
To access your credit score, you can request a credit report from the Credit Bureau Singapore (CBS). You have two options: request a soft copy online or obtain a hard copy at select SingPost outlets, the CBS office, or CrimsonLogic Service Bureaus. Be aware that there is a fee involved, currently set at S$8 with additional charges for certain delivery methods. Notably, if you've recently applied for a credit facility with any CBS member, you are entitled to a free credit report.
Credit scores are not categorically "good" or "bad." The evaluation depends on the specific loan product and the lender's risk tolerance. Your credit score influences the cost of the loan and whether your application is approved. Applicants with higher scores often secure loans with more favorable interest rates. Conversely, individuals with lower scores may struggle to secure a loan, and if they do, the terms and interest rates may be less favorable.
At various banks, a "cut-off" or base score is employed in lending decisions. Applicants whose credit scores fall below this threshold are typically declined, while those above it may be approved, provided they meet additional affordability and verification requirements. This "cut-off" ensures that the bank only accepts customers whose risk profile aligns with its risk appetite for the specific product.
Lenders may also consider various other factors during loan applications, including annual income, employment history, bankruptcy or litigation records, and the number of credit facilities. For precise details about SCB's product-specific criteria, refer to the supporting credit risk policy.
These factors impact the credit score that is provided by CBS:
Your credit report reflects your financial behaviour over the past 12 months. This means that you can improve your score if you consistently manage your credit behaviour for 12 months. Here are some tips:
But before you see how to improve your score, it is important to know how to Interpret Your Credit Report.
Your credit report contains various sections:
This includes the date of your earliest known credit account, previous inquiries, the number of accounts you own, defaults, bankruptcy proceedings, secured and unsecured credit limits, Debt Management Programme (DMP) status, ID theft, and narratives.
Used for verification purposes.
Displays all your credit facilities and repayment activity in the last 12 months. For credit card facilities, there will be a
Full legend is as per below:
Records all lender inquiries in response to loan applications.
Lists payment defaults on your credit facilities.
Records DRS activity and status.
Displays bankruptcy records.
Your credit score is prominently displayed.
Miscellaneous comments provided by third parties.
Records outstanding balances based on unpaid amounts under your credit facilities.
Records monthly instalments for each credit facility for the previous and upcoming months.
This constitutes a business choice made by the credit provider and can hinge on several considerations. Typically, an account will be designated as in default after it remains overdue for 90 days or more. It's important to note that Credit Bureau (Singapore) doesn't dictate when an account is categorized as in default; instead, it mirrors this information once the bank has officially classified it as such.
The importance of each type of information varies in the assessment of creditworthiness. Consequently, the credit report retains information to assist members in their creditworthiness evaluation as follows:
Understanding your credit score and how it impacts your financial life is crucial in Singapore's lending landscape. By monitoring your credit score, adhering to responsible financial practices, and managing your existing credit wisely, you can enhance your creditworthiness and secure more favorable loan terms. Always remember to assess your lender's loan offerings to ensure you are getting the best possible deal. At Lendingpot, we strive to provide competitive loan packages that align with our customers' needs.
Benjamin heads up Lendingpot with a background in all things SME. He was previously a commercial banker at Citi with experience in Relationship management, Credit Risk, Trade Operations and Corporate FX sales; and understands the difficulties SMEs face in this opaque world of SME financing.