How Your Credit Score Determines Your Financial Future

How Your Credit Score Determines Your Financial Future

Many of us lack knowledge of how the credit scoring system works. It is not until we find ourselves in a fix of wanting to start businesses, buy or build homes, make other purchases, that we flock to acquire instant cash loans in Singapore.

Usually, a credit score is a three-digit number which lenders use to decide whether we qualify for a mortgage, credit card or other credit affiliates and interest rates charged to the cards. Therefore, in applying for a loan, a credit score represents your credit risk to potential lenders.

Every individual has a credit score, whether married or not. In any loan application process, the scores of both co-signers are usually scrutinized. If your credit score and thus credit risk are low, you reduce chances of getting credit. And when you do qualify to get a loan, the credit will cost you higher. In simple terms, you will have to pay more to apply.

Credit scores range from 300 to 850. In terms of locking interest rates, higher scores will increase the credit terms you can gain.

Read on below to understand how a credit score has an impact on your financial future.

How does your credit score affect you?

In the event that you need $200,000 in a fixed rate for a thirty-year mortgage – you may have to seek a loan to finance the amount over time.

So, if you have a high credit score between 760 and 850, your applied loan will be charged at 3.307% interest. At this rate, the loan lender will require $877 monthly payment. A credit score will be charged at 4.869% instead if it falls in the lower range from 620 to 639, reflecting a $1,061 monthly payment.

What elements hurt your credit score?

Payment history

This refers to a track record of how you have repaid all your debts. It comprises the payments on your credit cards, instalment loans like student or automobile loans, retail accounts, mortgages or company accounts. Loan lenders also consider public reports or records with details of foreclosures, bankruptcies, liens, suits, wage attachments and judgements.

Credit utilization or amount owed

This element shows how deeply you might be in debt and determines whether you can manage the amount you loan. A high outstanding balance or nearly maxed-out credit cards will affect your credit score.

In Singapore, your credit card limit is dependent on which age group you fall under – those up to fifty-five years and those who are above fifty-five years of age.

If you are fifty-five years and below, your annual income is the determinant of your credit limit. Should your yearly income be S$30,000 and below, or of S$30,000 to S$120,000, your credit limit will be two or four times your monthly income, respectively. But if you earn S$120,000 in a year, there is no credit limit.

If you are above fifty-five years of age, there is a prior requirement for your net personal assets to fall in the range of S$750,000 to S$2million. Then, if your annual income is capped at S$15,000, your credit limit will be S$2,5000. On the other hand, your given credit limit would be two or four times your monthly income, should your yearly income be S$15,000 to S$30,000 or S$30,000 to S$120,000, respectively.

Length of your credit history

This is the length of time you have loaned for and used the credit. If you have responsibly managed your credit over an extended period, you would have a better score. These personal repayment patterns will be granted access to a licensed money lender Singapore.

Types of credit

Types of credit refer to the credit “mix” you have. It includes retail accounts, credit cards, finance company accounts, instalment loans and mortgage loans. However, there is no need to acquire all accounts. This factor is based on types of credits at hand and if you have used the credit appropriately.

New credit inquiries

In most cases, people without a long-established credit history find it riskier to open several credit accounts within a short period. Each time you make a new credit application line, it is an inquiry or a hard hit to your credit score.

If you pursue a single loan in 14 days, it would only create a single hard hit. On the other hand, multiple credit card applications in a shorter period would result in multiple hard hits, which lowers your score.

Conclusion

Managing a good credit score is a crucial part of managing your financial future. With better knowledge of the components that make and therefore impact your credit score, maintaining a good credit score is attainable.

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