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Having a good credit rating is always important when it comes to borrow credit from banks or other financial institutions in Malaysia. In fact, it is the first criterion that determines an applicant’s eligibility for any kind of credit applications in Malaysia.
What is a credit report or rating?
A credit report is a detailed record of your borrowings, repayment history and personal particulars. The Credit Bureau of Malaysia Credit prepares credit reports of individuals or firms in Malaysia by collecting credit information from banks and other lending institutions and send them back to the institutions via an on-line system called Central Credit Reference Information System (CCRIS). Thus, a credit report is a kind of file that contains everything that a bank needs to know about your financial history before approving your loan application. Credit ratings are prepared based on information such as how many banks account you have, how many times you have delayed your credit card bill payment, how many times bank has rejected your loan applications, how many secured and unsecured loans you have etc.
- Know your Credit rating
- Never delay your debt payments
- Pay your credit card bills on time
- Don’t opt for multiple loans/cards
- Avoid requesting for increased credit limit
- Try to be in a steady job
Always keep track of your credit ratings. It’s important you frequently check and verify your credit report to wipe out any discrepancies. You can do so by obtaining a copy of your credit report from Bank Negara Malaysia (BNM) without paying any fees. The only thing you have to do to access your report is to visit any branch of Bank Negara with your NRIC and fill an application form. The application form is also available online which you can download, fill and mail to BNMTELELINK. Next, you will receive a copy of your credit rating.
Never make delays in repaying your debts. Paying them off on time or ahead of time not only helps you save, it also helps you improve your credit rating. With disciplined and controlled spending, you can easily pay off your debts on time. Paying off debts without any delay will turn you into a serious and responsible borrower which subsequently boost your credit report and build trust between you and your lender. Delayed payments and non-payments may harmfully affect your credit history and bring down your credit score.
Always pay your credit card bills on time. Delayed payment of credit card bills not only earns heavy interest payment, it also brings down your credit ratings. We often forget to pay our bills on time and end up making unnecessary delay. So, list down your bill payment due dates and make it a habit to pay your credit card bills on time.
It is advisable you don’t opt for multiple loans and credit cards. Having multiple secured and unsecured loans and credit cards may negatively affect your credit score. Because, it implies the high amount of debt you carry with you; it will also affect your debt to income ratio. If your debt to income ratio shows that you are already overburdened, your credit rating may go down and you may not be able to receive further credits. Likewise having multiple credit cards and closing your old credit cards may also affect your credit ratings.
When you request for an increase on your credit limit, it shows that you heavily rely on your credit cards and you are overburdened. So, if you want to improve your credit ratings, don’t request for a higher limit, unless you really need it. And keep a track of your credit utilization and keep your balances low.
Being in a stable job indicates that you would be able to repay your debts on time. Since you have a steady income source, banks and other financial institutions may consider you to be a less risky borrower. This may help you have a better credit ratings. It’s like you would always want to lend money to a person who repays it on time, not to someone who skips repayment.
Since, having a good credit rating is very essential to save your loan applications from being rejected by banks, it important you don’t undermine your credit ratings and constantly keep a track of it to avoid having a bad credit rating. The above-mentioned steps would definitely help you improve your crediting rating.
Impact of bad credit rating
People who ignore the importance of a good credit rating often pay the price for it when it comes to apply for credits. A loan applicant with a bad credit ratings has to face a lot of hassles while applying for credits in Malaysia. Banks often charge higher rate of interest for such applicants, compared to those who have good credit ratings.
How to Build Up a Good Credit Rating if you have a Zero or Bad Score
Do you want to make sure that you are eligible for a credit card? One of the main criteria for your application to get approved is your credit score. Most banks expect you to have a score of at least 600 and above.
If your rating is low, i.e. you have a bad credit rating, or no credit score at all, then you will have to put in some work before you can get your hands on a card.
What is the Difference between No Credit and Bad Credit Scores?
If you have never held a card or loan against your name, it means that there is no record of how good or bad you are at handling debt. In a no-score situation, creditors don’t have a way of predicting whether you will repay the borrowed amount or not.
Bad credit is when you haven’t been responsible with your card payments. A bad score could be a result of missed or late payments. If your score is below 600, your application for a new card will most likely be turned down.
Either ways, you don’t have the required score to secure a new card.
No credit rating – What can be your next step?
A no-score situation means that you have to build your rating up from scratch. You will not be able to directly apply for the card that you want, but can take small steps to establish a credit history.
Apply for a Starter Credit Card
Most banks offer starter cards to help customers build their score. As the name suggests, you don’t need to have an established credit history to be eligible for this card. You may or may not have the same perks and privileges as a regular card, but it an excellent starting point. A card with a reasonable limit will make sure that you don’t go overboard with your spending.
Keep in Mind
- Remember that the starter card is to help you build a good score. You must inculcate a healthy attitude towards incurring and repaying debt. Once you have your card, be judicious about your purchases and always pay your dues on time.
- Another good practice is to clear the full outstanding amount or make more than the required minimum payment each month.
Secured Credit Cards
Banks issue cards against some form of security like a fixed deposit. The cash deposit becomes your line of credit. You can only spend an amount that is less than or equal to the value of the deposit. Secured cards offer minimum perks but are one of the best ways to start off on building your rating.
Keep in Mind
- Many of the secured cards on offer come with add-on offers which can bring up the cost of owning the card. It is important that you only opt for what you need and not get carried away with the offers.
- Once you have built a good score, you must not go overboard and apply for multiple cards. The approval or rejection of your application will affect your rating.
Bad Credit Score – Where to Go From Here?
A bad score doesn’t exactly sing praises of your attitude toward debt. Very few banks and other financial institutions will be willing to offer you a new line of credit. But there are ways to improve your score.
Make Regular Payments
If you have a poor rating, one of the first things you need to do is start making regular payments towards your open lines of credit. You will have to pay more than the minimum payable amount each month in order to get your score up.
Keep in Mind
- In case your financial situation is strained and you are unable to make regular payments, you can opt for a debt consolidation loan. The thing you need to keep in mind while choosing a consolidation plan is to ensure a low rate of interest. A single missed or delayed payment will put a substantial dent in your score.
Apply for a Card that Offers Zero Interest Balance Transfer Facility
Some banks offer balance transfer cards to help customers pay off their debt. You can transfer all your outstanding card debt to your new card and pay off the amount without worrying about the interest rate.
Keep in Mind
- You will not be able to transfer an amount that exceeds your credit limit. If you have racked up significant debt, focus on clearing it off bit by bit.
When you compare having a bad score to zero credit rating at all, it is easier to work your way up from a no-score situation. But do not get discouraged if you have a poor rating. It is essential that you take your finances seriously and refrain from making unnecessary purchases. Your best chance is to get a balance transfer card to help reduce your debt.
You also need to keep in mind not to use more than 30% of your credit limit. A high utilisation percentage indicates that you are heavily dependent on your credit line, which will impact your score negatively. These practices will help you build up your score, and over time, you could be eligible for a new credit card.