Your credit reputation is just as important as your actual one as you apply for credit facilities. Your credit score is a representation of your risk level and is calculated based on your available credit information. As the information on your credit file changes in tandem with your monthly payment behaviour, so will your credit score.
Upon your application for a credit facility, financial institutions (FIs) are required to conduct checks on your credit file. These mandatory checks have been implemented to help individuals who are at risk of credit problems avoid getting into greater debt.
With your credit report, FIs are able to forecast your future payment habits. Hence, a good credit reputation would reflect positively on you and help in your application for things like credit cards and home loans.
Here are some factors that will affect your credit reputation, and in turn, your chances of availing credit.
1. Your number of credit facilities
How many is too many? The common misconception of taking on multiple new credit facilities might be ‘as long as I don’t use it, I should be fine’.
Owning too many credit facilities contributes to your available credit, which FIs will take into consideration when granting your credit application. As such, consumers are advised to only apply for what is necessary.
2. Having too many new credit enquiries
Each time you apply for a new credit facility, lenders are required to do a bureau check to assess your creditworthiness. These enquiries will be recorded on your report and retained for two years. Applying for too many new credit facilities within a short period of time affects your score as it makes you look credit hungry. Apply in moderation!
3. An immature credit history
If you’re a fresh graduate or an individual who believes in ‘cash-only’ payment habits, you may not have previously owned any credit facilities. As such, the information in your credit file is limited, making it tougher for lenders to assess you and predict your future credit payment behaviour.
You can start a positive credit record by getting yourself your first ever credit card (don’t miss out on earning cashback and rewards on your spends!), and enforce good payment behaviour. That could set you on the right path for your future applications.
4. Adverse credit history
A negative track record of payment history will make an applicant seem less appealing to lenders as they are deemed riskier than others who have positive ones. You can improve your credit score by paying your bills on time consistently. This will set you on the right track to repairing your credit reputation.
Individuals are advised to review their credit reports regularly or at least twice yearly. There’s no better time than now to boost your credit reputation!
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