Most Malaysians take personal loans to renovate their homes, to have a destination wedding, or to pay off unconsolidated debt. But not everyone can have their loan applications approved as they might not fulfil the eligibility criteria or due to other factors. One of the underlying factors of loan rejection is a poor credit score.
Many individuals are not aware of the importance of their credit history. Some are under the assumption that their credit score is good but in reality, it isn’t so.
Let’s take a look at how important your credit score is in order to get a personal loan easily.
What is a Credit Score?
A credit score analyses the creditworthiness of an individual. It helps monitor the status of your credit health, which is an important factor as far as personal loan application is concerned. In Malaysia, there are two systems that can help you track and monitor your credit history. They are CCRIS (Central Credit Reference Information System) and CTOS (Credit Tip Off Service).
Managed by the Credit Bureau of Bank Negara, CCRIS gathers the credit information of individuals from banks and other financial institutions. CTOS, on the other hand, is managed by a private company after getting a nod from the central bank and is the widely used system in the country. In an ideal credit report, you will not only be able to check your credit history, but also how many times you were searched by lenders, how often you have made payments, and if there are any legal cases against you.
Why Your Credit Score is Important?
While Applying for a Personal Loan in Malaysia, the bank needs to be assured that the loan applicant will be able to make the monthly repayments regularly and on time. The only way to assess this is by checking the creditworthiness of the customer. Your creditworthiness is reflected on your credit score. A credit score of 718 to 850 is a good score, from 650 to 717 is an average score, and anything under 650 is a low score.
Reasons for a Poor Credit Score
If you are surprised to find that you have a bad credit score and have no idea how it happened, you must know the reasons for a bad score.
- Making late payments: Your credit history plays an important role to determine your credit score. Paying your monthly credit card and loan payments late can considerably decrease your credit score. As a result, your account could be charged off.
- Not having a credit history: If you don’t have a credit card or a loan, the bank will not be able to track your credit history. This also gives you a poor credit score to start of with.
- Having several credit cards: Some people opt for more than three cards so that they will get the benefit of a combined credit limit. While this looks like a smart move it actually isn't. It only lowers your credit utilisation ratio and thereby lowers your credit score as well. Moreover, the banks will see you as someone who cannot handle your finances well.
- Replacing your NRIC: The more you replace your NRIC, the more it can reduce your credit score. When you change your NRIC, the new card will have a specific number of card replacements you've had.
- If your cheque has bounced: If you have any dishonoured cheques, it can hurt your credit score.
- Standing as a guarantor: If you are standing as a loan guarantor for someone, and the person has delayed a loan payment, it will affect your credit score.
- Applying for too credit cards - When you apply for many credit cards and loans, the bank will assume that you cannot manage your finances properly.
Ways to Improve Your Credit Score
Whether you have an average or a poor credit score, there are still ways to boost it. Take a look at some of the ways you can increase your credit ratings:
- Check your credit score on a regular basis. This will help you manage your finances and thereby put you back on track.
- Make sure you make all the due payments on time and also pay off all the debts you have.
- Monitor your credit card payments and maintain a low balance.
- If you are not using any credit cards, cancelling them will be a good idea.
- If you are applying for a loan, shortlist a few banks and choose the packages that suit you the most.
- If you apply in more than two to three banks, your loan could get rejected.
- Don't use the increase credit limit facility on your card, unless you need it.
- Don’t opt for many credit cards. Many cards will only lower your credit card utilisation ratio.
Having a good credit rating can help you get your loan processed quickly, without any hassle. You don't have to worry if you have a poor credit score, you can implement the tips to improve your ratings considerably.