A credit score is really a snapshot or a picture at a glance of what a person’s credit trustworthiness is. It lets a potential lender know whether the loan applicant is a high default risk.
Depending on whether the lender is a low, medium, or high risk, they can decide whether to lend the person money and at what interest rate. Low risk borrowers tend to have a high credit rating and they usually get the lowest interest rates in the market. Medium risk borrowers usually have an average credit rating and they get the average advertised interest rates. High risk borrowers, with low credit rating tend to be charged high interest rates. In some cases, high risk borrowers may even be turned away and not lent any money.
The Credit Report
The credit score is based on one’s credit report. This report carries one’s credit payment history as well as other information relevant to assessing one’s credit worthiness. The information includes personal data such as phone numbers and contact address. It also includes aggregated credit limits, any default records, any credit checks made, litigation records, aggregated outstanding balances, 12-month credit repayment trend, 5-year bankruptcy records, and credit accounts that have been terminated or closed in the last 3 years.
All these records are kept and updated by CBS, the Credit Bureau (Singapore) Pte. Ltd. This Bureau is jointly owned by an information management company and ABS (Association of Banks in Singapore). Major financial institutions and all retail banks upload information to CBS. This makes CBS a central repository of all credit information so that lenders can be able to holistically assess potential borrowers to make lending decisions that are accurate.
It is important to note that CBS does not make any decision as to whether to give or deny credit to any individual or company. This decision is made solely by the lender. The information that CBS provides in the form of a credit score is just one part of the evaluation criteria used by lenders. Lenders still need to consider how much one is currently making yearly, how long he or she has been employed, and many other factors.
It is good to know that one’s personal information that is held by CBS is safe and secure. It can only be accessed by financial institutions that are members of CBS, and by the individual. This information is protected by law and cannot be disclosed or used for other purposes.
Singapore Credit Scores
In Singapore the credit score is a number with 4 digits. The range starts at 1000 and ends at 2000, and the risk grades range from AA to HH.
- HH is a score range of 1000 to 1723. The default probability is 3.46% to 100%.
- GG is a score range of 1724 to 1754. The default probability is 2.28% to 3.46%.
- FF is a score range of 1755 to 1781. The default probability is 1.58% to 2.28%.
- EE is a score range of 1782 to 1812. The default probability is 1.03% to 1.58%.
- DD is a score range of 1813 to 1824. The default probability is 0.88% to 1.03%.
- CC is a score range of 1825 to 1843. The default probability is 0.67% to 0.88%.
- BB is a score range of 1844 to 1910. The default probability is 0.27% to 0.67%.
- AA is a score range of 1911 to 2000. The default probability is 0.00% to 0.27%.
How Do Credit Scores Affect You?
How good or bad the credit score is, affects one’s ability to access crucial loans. A good example is a housing loan. Whether the borrower is applying for a loan with a bank or with the HDB, he or she will need to have reasonably good credit to get approval.
LTV (Loan to Value) ratio is also affected by credit scores. People with reasonably good credit can borrow as much as 80% of the home’s value, while those with poor credit may be limited to about 60%. This means that if the person has poor credit, he or she will have to save a lot more cash to put as a down payment for the home. In some cases, people with a CC credit rating and below may even be rejected entirely.
This challenge with getting financing will be repeated with education loans, car loans, business loans, and any other financing. As such, if one’s credit is bad, the only option that he or she has is to save up the money they need and make cash purchases. Interestingly, some careers will require that one presents his or her credit report before getting hired. These includes politics, law and finance positions. If one has a poor credit rating, he or she may find that accessing particular positions in these fields may be difficult.