You know that credit cards come with many advantages. You can make your whole life easier, from shopping to paying your bills. However, credit cards can also lead you into the trap of irresponsible spending.
If you don’t learn how to manage your finances, you can ruin your credit history, score, and rating. In this article, you’ll find out how to avoid these problems and also how to improve your credit score. Read along!
With over 3.5 million credit cards in the country, the spending is on the rise. However, not a lot of people know the basic things about their credit cards, such as:
- Your credit history aka the record of your debt payment tells financial institutions whether you can repay your loans diligently.
- Your credit report summarizes your entire credit history. You can find out info such as your financial activities, your diligence in repaying your loans, plus your eligibility for a new loan. Your credit report also includes your outstanding credits and the number of loan applications for the last 12 months
Your credit score is an evaluation of your credit rating using numbers. A low score tells financial institutions you can’t handle debt responsibly, whereas a high score shows you’re trustworthy when it comes to loan repayment.
More About Your Credit Report
Now that you know the basics, you might still have some questions. For instance, you know that your credit report has all the info on your financial activity.
But who can get hold of your credit report? How can your credit report influence your life? And can you get it, as well?
Read on to find the answers to these questions.
Who can read my credit report?
You might have figured that credit reports are packed with confidential personal info, which is why not everyone can access them. The only institutions/ people which can be given a copy of your credit report are:
- Financial institutions where you apply for a loan
- Credit reporting agencies. These agencies require your consent and they have to be licensed by Bank Negara.
I want to read my credit report. How do I do it?
There are three ways to get your credit report:
Bank Negara Malaysia will give you the report on the same day as your application and it doesn’t cost you anything. However, you need your MyKad and another ID card to check your identity, such as your licence.
- You can only get your credit report, not somebody else’s.
- You can ask for your company’s credit report if it’s your company or you have been authorized by it.
- You can ask for a deceased person’s credit report if you’re authorized by the court.
The Central Credit Reference Information System (CCRIS) will give you a yearly report of your credit, with all the good and bad. CCRIS is a public company operating under Bank Negara. CCRIS reports decide your eligibility when you ask for a line of credit.
The CTOS is a private company used mainly by financing institutions when they want to appraise your loan eligibility. That’s because CTOS gets its info from financial institutions as well, whereas CCRIS gets its info from public places. Basically, financing institutions will find out things about your spending habits, legal proceedings, and any insolvency submissions.
The Credit Scoring System
Your credit history and credit report influence your credit score. Find out how the credit scoring system works in Malaysia to learn if you’re eligible for a loan.
Your credit score is derived from the data provided by CCRIS and CTOS. Here’s what counts when rounding up your score:
- Payment history. Your ability to repay your loans on time values 45% of your end score.
- Sums you owe. Your total loan amounts and credit facilities add up to 20% of your score.
- Credit history length. The time you’ve had a credit card or a loan comprises 7% of your credit score.
- Credit mix. This section weighs your secured loans versus your unsecured loans, and it weighs 14% of your score.
- New credit. Any new credit approval values 14% of your score.
Remember that some factors aren’t what they look like. For instance, you may believe that a short credit history length is better because it’s better not to be indebted. However, if you don’t have any credit history, financial institutions can’t infer your diligence of repaying your loans.
With that in mind, here’s what your credit score means:
- 744-850: Excellent repaying ability.
- 718-743: A very good customer.
- 697-717: Good for new credit.
- 651-696: Below average and not as good to get new credit.
- 529-650: Low credit score. You may have troubles getting credit.
- 300-528: Very low credit score. Your application will probably be rejected.
- No Score: Too little data to generate your score.
Based on these scores, a bank or a licensed moneylender can decide:
- If they should give you a loan or not
- The amount you can borrow
- The interest they should charge
- If they should give you insurance or not
Keep in mind that the deciding factor is your present-day financial situation. As such, some licensed moneylenders can overlook a low credit score if you can prove your goodwill and your current ability to repay a loan.
How to Improve Your Credit Score
If you know your credit score is not so good, don’t despair. There are still plenty of things you can do to improve it.
But before we get to that, you need to know what financial institutions dislike:
- Maxing out on your credit card. Keep your credit card utilization under 20% if you want to improve your scores.
- Missed or late payments. This can happen if you’ve lost your job or had an emergency. In this case, it’s best to contact the Credit Counselling and Debt Management Agency (AKPK) to reorganize your payment scheme.
- Big outstanding credit compared to your income. Make sure you don’t default on your loan. If you can’t honour your contract, contact your bank to arrange a better payment scheme.
- A lot of credit applications within the last 12 months. Applying to lots of loans shows a whiff of desperation.
- Multiple active loans. That may mean you’re not spending your money wisely according to your financial power.
- Any accounts you have under legal status. This shows you may not be trusted to repay your loan.
- Foreclosed items. If you’re losing your collaterals, you may be over-evaluating your ability to repay your debts. It also shows you may not have your priorities straight.
- No credit history. If you don’t have a credit card or a loan, you become “credit invisible”. Therefore, agencies don’t have enough data to generate your score, which means nobody knows if you’re financially trustworthy. Contrary to general belief, people who show they can handle various accounts or debts can get a higher score.
That said, you can rebuild your credit if you’re willing to do the work. It may take years to do it, though, depending on how bad your credit score is today. Keep in mind that delinquency is kept on your credit history for seven years.
Here are some tips to remember:
- Work on your credit history early on. Get a basic credit card to show banks that you can keep responsible finances.
- Pay your bills and instalments on time most of the time. Even if you miss a few deadlines, it’s important to show tenacity and willingness to be correct.
- Don’t get into too much debt. Show financial institutions that you can prioritize your purchases according to your financial power. Apply for new loans only for things you can’t live without, especially if you have a bad credit score.
- Fix your credit history problems. Get in touch with a trustworthy moneylender to refinance your credits or to work out a more advantageous repayment scheme. Be upfront with your bank regardless of your problems so that you can agree on better terms for both of you.
- Keep your credit cards open. If you’re not paying annual fees, it’s best to keep your accounts open. That way, your credit utilization ratio will decrease because you’ll owe the same sum of money, but you’ll have more open accounts.
- Check your credit history twice per year because mistakes happen. For instance, you may appear with missed deadlines even though you pay your instalments and utility bills conscientiously. These errors can occur because of faulty programs or a lack of attention, so it’s best to dispute them to clear your score.
The credit scoring system in Malaysia is based on your credit history, credit report, and credit score. Now that you read this article, you can understand how financial institutions infer your repaying ability and overall debt responsibility.
Remember to check your credit report frequently so that you can work on it. Even if you have a poor credit score and need a loan, don’t despair.
Licensed moneylenders like Intime Advance can help you even when things seem dire. We’re expert at finding the best loans for everyone. Call us today to find out what we can do for you.