Managing Debt

How To Maintain A Good Credit Score And Why It’s Important

​Sometimes you need funds to buy something expensive, like a car or a house, and you don't have that much money to spare.What can you do? This is where credit comes in handy. Credit, like loans or credit cards, allows you to borrow money to buy now with the promise to repay it in the future with interest added.With loans, you borrow a lump sum as a one-off and repay it with interest over a set period of time. Credit cards are more flexible for shorter terms; they provide you with a spending limit, and you pay interest on whatever you owe until you pay it off.However, just because you can borrow doesn't mean you should max out your credit on a designer wardrobe or supercar because your borrowing isn’t a secret and there is a limit to what the banks will lend you.Your credit score determines how many loans you can apply for as well as access to some bank services like credit cards and personal loans.Why do I need a good score?Before lending to you, banks need proof that you're earning enough to repay them.Banks will also assess creditworthiness based on factors such as your income stability, current financial obligations and assets, your credit score and history of repaying debts on time, and your current total debt amount.Essentially, you must convince them that you are a responsible borrower who can afford to repay the loan.A good score helps you to borrow at better rates from more banks if you require a housing loan. Many banks will usually check your credit score on Credit Bureau Singapore before issuing you bank products.A high credit score means that you will most likely qualify for the lowest interest rates and fees for new loans and lines of credit. Ifyou're applying for a mortgage, you could save a lot of money by paying less interest.How to uphold your creditworthiness with responsible credit practicesAlways pay your loans on time and keep your credit card balances low. This helps you avoid late fees and keeps your credit score healthy.Use less than 30% of your available credit. Boost your credit score by showing lenders that you use credit responsibly and can manage it well.By maintaining a strong credit profile, you'll be in a better position to borrow when you need to.Only borrow money for important, productive purposes. This includes things like buying a home, paying for education, or investing in a business. These investments can help you grow your wealth over time.Just because you qualify for a large loan doesn't mean you should take it. Consider your future financial goals and commitments before taking on new debt.Borrow according to your needs and goalsBeing mindful of both your current and future needs will help you avoid taking on too much debt and ensure you can manage your finances effectively. Avoid relying on credit for non-essential purchases, such as luxury items or holidays. It’s fine to pay for a trip on your credit card for the cashback, just make sure you have the money in the bank to pay it off when the statement comes in.Borrowing to buy your ‘wants’ means you can’t afford them and can lead to unnecessary debt and financial strain. Always prioritise borrowing for things that will benefit you in the long run and help you build a secure financial future.Budgeting for loan repayments helps to ensure you can comfortably afford them without straining your finances. Take time to shop around for loans and credit cards. Look for ones with the best terms, such as lower interest rates, minimal fees and favourable repayment conditions.Researching and comparing options may take some time, but it can save you money in the long run. By planning your borrowing carefully, you can manage your debt more effectively and avoid financial stress.Avoid falling into interest rates debtBorrowing money isn't free - it costs extra due to interest. Higher interest rates and longer loan terms mean you'll pay more over time.To avoid surprises, always check the interest rates on loans and credit cards. Calculate the total amount you'll repay over the life of the loan, including interest.This helps you understand the true cost and ensures you don't take on debt that's too expensive. Borrow wisely by keeping the loan amount and repayment period within manageable limits.If you find yourself burdened by debts, you need to address them promptly. Tackling your debts helps you save on interest costs over time, freeing up more money for savings. Managing your debts responsibly also helps build and maintain a positive credit rating.Lenders view borrowers who handle their debts well as more reliable and trustworthy. By actively managing your debts, you not only save money but also pave the way for a healthier financial future.