Achieving your business goals becomes possible when your credit limit can accommodate the necessary sum of money needed. Hence, it pays to understand your personal credit score and its effects on your business loan.
It is important for financial institutions and lenders to protect their investments. To do so, they use the credit histories of potential borrowers as a guide to determine their riskiness. Hence, one of the best ways to secure a business loan is to have a good credit score.
What Is A Good Personal Credit Score?
Your credit score reflects your creditworthiness, and it is gleaned from your credit history. Lenders use it to predict how well the borrower can pay the loan back. The credit score also helps the lender decide on the credit limit and interest rates for a borrower. A better credit score may increase your credit limit, and decrease your interest rate.
Hence, it is important to maintain a good credit score. Some of the best ways to do this are paying invoices on time, and maintaining small balances on your credit card. Being on top of your monthly payments opens the door to approval of your business loans, helping your company to grow.
Calculating Your Credit Score in Singapore
Credit Bureau Singapore (CBS) maintains a consumer credit report of any individual based in Singapore. The numerical score ranges from 1000 to 2000, and measures the creditworthiness of the individual using information provided from various financial institutions. These include traditional banks, credit card companies, and other financial institutions that have had or currently have a relationship with the individual. How to check credit score in Singapore? Purchase your Credit Bureau report from Credit Bureau Singapore.
Compared to financial institutions, Poss has simpler borrowing requirements. Complete your Quik application in 4 simple steps, with a few documents including the credit report, identity proof, notice of assessment, and bank statements.
What Are The Five Major Factors That Determines A Person’s Score?
1. Payment History (35%)
Your credit report records how often you pay your bills on time and how many times payments have been missed. How far behind you are with your bills payment is a leading indicator of your debt repayment ability, and scores will be negatively affected by any payments past the due date. Therefore, you should pay your debts on time to improve or maintain a good credit score.
2. Outstanding Balances (30%)
This sum of money owed is compared against the credit limit made available to you by financial institutions. Circumstances like having maxed out credit cards coupled with high balances will lower your credit score, as it means poor financial management. In addition, a higher debt equates to a higher risk of defaulting. On the other hand, prompt repayment of loans and low balances will help improve your credit score, as it implies good financial management.
3. Length Of Credit History (15%)
A longer credit history, with a record of timely payments, reflects positively on your creditworthiness, implying that you are a reliable borrower. Thus, it is good to keep your accounts open and active. You can do this by maintaining a low balance, so as to demonstrate your responsible credit management.
4. Types Of Accounts (10%)
The types of credit facilities you have would provide an insight into your spending needs and existing debt obligations. This includes motor vehicle loans, mortgage loans and revolving credit facilities such as credit cards for your day to day expenses. It is important to opt for the appropriate credit facility for your purchases, as different types of accounts function differently.
5. Recent Credit Activity (10%)
Finally, recent credit activity implies the immediate need for financing. Therefore, it is not wise to open multiple accounts at the same time, as it suggests that you may have financial trouble in the future. Due to this, the credit scoring model will lower your credit score.
What Can Improve Your Personal Credit Score?
Before you begin spending on credit, take the time to understand the terms and conditions of each type of account, as well as any fees involved. You should keep track of your accounts and history, and if you realise that there are differences between the reality and your expectations, address your concerns promptly. Make sure to maintain a good relationship with your financial institution. It is good to have a reliable financial support system, especially if you require business financing in the future.
We can do so much more when we are financially supported by lenders who trust us. Let Poss be that lender for you. With simple borrowing requirements and transparent fees, you can obtain additional financing from us. Contact us for more information, and focus on effectively growing your business without any worries.