A credit report is a consolidated report of the repayment history and outstanding balances of all debt obligations (credit cards, car loans, mortgages, personal loans etc) taken from a financial institution in Singapore.
A credit score or credit rating is a points based system within the credit report which is used to ascertain the probability of default an individual might have for any debt facilities.
Banks use your credit score to determine during their credit underwriting process to determine if they should lend any form of loans or issue any credit cards to an individual.
All banks will refer to your credit report from the Credit Bureau of Singapore (CBS), before approving a mortgage application in Singapore. The credit report determines how the bank treats your application. A bad credit score or rating can mean outright rejection or a lower Loan to Value (LTV) ratio, which means you will have to borrow a smaller loan amount.
There are two components to your credit report. The first is your credit grade—expressed in letters, such as AA or BB—which is determined by a numerical credit score and also the best credit grades in securing a home loan in Singapore.
Here’s what the credit scoring system looks like:
|Credit grade||Credit score||Probability of Default|
|AA||1911 to 2000||Less than 0.27%|
|BB||1844 to 1910||0.27% to 0.67%|
|CC||1825-1834||0.67% to 0.88%|
|DD||1813-1824||0.88% to 1.03%|
|EE||1782-1812||1.03% to 1.58%|
|FF||1755-1781||1.58% to 2.28%|
|GG||1724-1754||2.28% to 3.48%|
|HH||1000-1723||More than 3.48%|
Note that you will face slight difficulty in getting a home loan in Singapore once your credit grade is indicated as CC.
From a credit grade of DD onwards it gets increasingly harder for a credit card much less a home loan to be granted.
For credit gradings of GG or HH which indicate the highest probability of default, unfortunately, no financial institution will be able to grant any form of credit facilities. The next best option would be alternative lenders.
Note that the exact weight of each factor is unknown as the calculation is done by a proprietary algorithm (a “black box”). However, it’s possible to improve your credit score by working on the above factors.
Although reading a credit report can be a little confusing with all the details within them, there are only a few sections where you need to pay attention to:
The summary section of the credit report provides a snapshot of your credit profile. As long as the entries titled ‘Defaults’, ‘Bankruptcy Proceedings’ are indicated as zero and ‘Debt Management Programme’ reflects a “N”, you can be assured that your credit profile is relatively healthy.
The most crucial aspect of your credit report is the account status history section which shows all outstanding loans and credit cards. It also indicates the specific banks and the repayment history for the past 12 months for each debt obligation currently held.
The monthly repayment cycles are represented by alphabets ranging from A to M, including an asterisk * which applies specifically to credit cards which indicate no usage on the card for that particular month.
A: Payments were current to 29 days past due
B: 30-59 days overdue
C: 60-89 days overdue
D: 90 days or more past due
E: Closed with no outstanding status
F: Closed with outstanding status
* Facility not used or zero balance
G: Voluntary closure with outstanding / surrender of security with outstanding balance
H: Involuntary closure with outstanding / surrender of security with outstanding balance
R: Closed, restructured loan
S: Closed, negotiated settlement prior to charge off
W: Coded as default record by Member
M: Account status not available for the particular month
When applying for a home loan or any other type of debt facility in Singapore, having a repayment cycle ranging from A (ideal) to C (not that bad) is acceptable by banks.
A bad credit rating would be characterised as having a monthly repayment cycle ranging from D to W (except for an E and an asterisk). For these ratings, chances of a rejection by banks is very high and a fair amount of justification would have to be made in order for the bank to consider issuing any form of loans or a credit card.
The bureau score is an overall credit rating given for your credit profit and banks may or may not necessarily pay attention to the rating. Unless you have a HH or GG rating which indicates the greatest probability of default, there isn’t much to be concerned about for bureaus score’s ranging from AA to FF
The credit report from CBS is generally updated on a monthly basis but might be slightly longer depending on the reporting schedule of participating banks to Credit Bureau Singapore.
Also, as the updating of the details within an individual’s credit report is relatively an involved process, there are instances where participating banks might have reported an incorrect credit grading – rarely but it has happened.
To rectify any incorrect updates to the credit report, it is best to speak to the customer service team from the specific financial institution. An added measure is to request for the bank to issue a letter stating that the affected credit facility has been closed with no outstanding balances.
In this way, when you are applying for any type of loans or credit cards the supporting letter can be used to avoid any rejections from other banks due to an incorrect credit grading.
A bad credit rating is an unfortunate situation and usually due to major faults within the repayment history or pending legal issues for a borrower. While a bad credit rating can be corrected in time, there are certain grades which can scar your credit report permanently.
Some of the bad credit ratings are indicated below:
Hx: This means there is, or was, a writ of bankruptcy issued against you. Alternatively, you may have some form of pending litigation. It is not possible to get a home loan for the next 3 to 5 years with this grade.
If you were bankrupt and have received your official letter of discharge, note that you must usually wait 5 to 7 years after the discharge before you can apply for a home loan.
Cx: Perhaps you have never used loans before. That means there isn’t enough data to tell if you are creditworthy. Not exactly a bad credit rating per se but banks will look upon such a grading less favourably which will result in a lower loan amount approved.
Hz: You have had a loan amount of at least $300 written off, or the loan repayment has been restructured or is at least 90 days past due. It is unlikely that you can get a bank loan while this is still on your credit report. However, if you repay the loan amount, this credit grade will be removed after three years.
Apart from certain credit grades (HH, GG, HX, HZ) it is usually possible to improve a bad credit score in as little as three months. You can use the 4 methods indicated below to clear a bad credit history:
You can consider getting a credit card with an instant cashback promotion, such as one that gives you $80 or $200 the moment you activate it. Charge a few items to the credit card and repay the full amount before the billing cycle.
There will be no interest charged if you pay before the billing cycle, and you’ll even make some extra money from the free cashback. But do not go overboardand start actually accumulating debt!
Also, try to keep it to one credit card or at a maximum 3.
Even a single late reminder can sometimes be enough to move your credit grade from AA to BB. If you haven’t been doing this, you can improve your credit score by making full and prompt for the next three months.
Do note that paying the minimum balance on your credit card is not the way to go and instead clearing all credit card balances monthly is the ideal approach.
If you have any unused credit cards or lines of credit, pay off any outstanding amount and close them. Ideally, try not to have more than two active credit accounts prior to a home loan application.
Get confirmation letters from the relevant banks to state that your various overdue accounts have been settled and closed with no outstanding balance. This will speed up your loan application process.
Sometimes, there will be a delay before your credit score reflects such repayments.
For more serious debt issues, consider using a Debt Consolidation Plan (DCP) instead of a Debt Management Plan (DMP).
The DCP and DMP are both designed to help people in serious debt. However, they work differently from each other.
Under the DCP, all your high-interest, unsecured loans will be consolidated under a single account. For example, if you owe $25,000 across five credit cards, and $30,000 in six separate personal loans, it will all be consolidated into a single $55,000 debt with a single bank. A single interest rate will apply to the whole amount).
The DCP is open to all Singapore Citizens and Singapore Permanent Residents earning $20,000 to $120,000 per year. You must owe at least 12 times your annual income to qualify for the DCP.
The DMP is a personal finance management programme in which a debt counsellor helps with your monthly budget, and may assist in negotiating with creditors. The DMP is often an intervention to stave off impending bankruptcy.
Between the two, the DCP gives you a better chance on a home loan application. It’s still possible to calculate how much debt you can afford to service, taking into account your DCP repayments.
If you would like to obtain your credit report, you can do so online via Credit Bureau Singapore for a fee of $6.42 or view the other available options.
Alternatively, a free credit report is always provided by the bank whenever a credit card or loan application is made.
Do also remember that even though having a good credit rating or score is crucial for a home loan application, ensuring that you have a comprehensive overview of the housing loan interest rates in Singapore is equally important.
If you are looking to buy a HDB in Singapore, a common thought comes to mind, “Should I choose a HDB loan or a bank loan?” The simple answer is
Apart from certain credit grades (HH, GG, HX, HZ) it is usually possible to improve a bad credit score in as little as three months.
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