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Is your business creditworthy?

A personal credit report is a record of all personal consumer credit facilities you may have along with your repayment history, with an overall credit score that sums up the risk you’ll default on a loan.

But perhaps you already knew that. What you may not have realised is that an unfavourable personal credit score can prevent you from getting a business loan easily.

As we noted in an earlier article, banks routinely consider the personal credit reports of company directors as part of the loan approval process.

This is because the repayment behaviour of a company is more often than not influenced by those who manage it.

If you’ve been finding it difficult to get a business loan, reading and understanding your credit report may reveal why exactly.

This is one of the portion that determines your credit score. Click to view full: Moneysense.gov.sg


1. A credit report records behaviours.

The bureau score system (see sample CBS report, the score is right at the bottom) is pretty easy to understand – a score of anything below grade CC means you’re likely to have a hard time getting a loan. However, this is just one section of the report.

The Account Status History section records your behaviour patterns over the last 12 months, in 3 distinct lines.

1. Repayment behaviour over the last 12 months

i.e. whether you’re making repayments on time or past the due date.

2. Cash Advance/Balance Transfer

e.g. drawing money from your credit card

3. Full or Partial Payment 

i.e. of your monthly repayment amount


2. Understanding these indications & their implications.

1. Repayment behaviour over the last 12 months

The later you pay, the lower your credit score will be. Banks favour customers who can pay on time.

Letter grade Meaning
A Payment made on time
B Payment made 1-2 months late
C Payment made 2-3 months late
D Payment made 3 months late or more
F Closed with outstanding balance
G Voluntarily closed with outstanding balance
H Involuntarily closed with outstanding balance

2. Cash Advance/Balance Transfer

Y = Yes, N = No.

Because cash advances are usually subjected to additional fees and interest rates, banks judge those who incur them as desperate customers.

3. Full or Partial Payment

Again: Y = Yes, N = No.

Banks have always preferred customers who pay their monthly dues in full and on time over those who consistently make partial payments.


3. How does this affect your business?

A history of late repayments in your personal credit report will make it difficult for you to get a business loan, even if you have a good overall bureau score (i.e. BB and above).

Credit reports also log a list of credit checks made by banks.

Too many enquiries in a short period of time can prove a turn-off for some lenders, as the default risk of a customer who may end up overstretching his finances, by taking on loans from various banks, is higher.


Conclusion.

These are just two of the more notable sections in a typical credit report worth paying attention to. Credit reports can be obtained from the Credit Bureau of Singapore and/or the DP Credit Bureau; both are recognised by the Government and work with major financial institutions.

The CBS also offers a credit report monitoring service which notifies subscribers of any changes made to their records.

There’s a lot more to getting a business loan than submitting an application; you need to prove that you’re credit-worthy. Getting a credit report is the first step to maintaining a good record.

If you’ve applied for a new loan with any CBS member in the last month, you can get a free copy of your credit report from the CBS.


About the Author

Paul Hong like to work with words. He studied English Lit through the University of London External System. Potato chips (especially of the cheese and onion variety) are like heaven-sent manna to him. 


Top photo adapted from: Freepik

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