What Is A Credit Score And How Is It Calculated?

A credit score refers to a number that ranges between 300-850 and it represents the creditworthiness of a consumer. If you have a high credit score, you stand a higher chance of acquiring an approved loan from a licensed moneylender in Singapore.

However, if you’re unsure of what a credit score is – it’s just based on your credit history – which essentially, reflects your open accounts, total debt levels and your repayment history, amongst other financial factors.

Read on to gain a better understanding of what a credit score is and how it’s calculated.

How does a credit score work?

A credit score can have a significant effect on an individual’s financial life. It helps the moneylenders make informed decisions before offering loans to people. For example, a person with a credit score below 640 is termed as a subprime borrower. Lending institutions usually charge interests on subprime mortgages at a higher rate as compared to a conventional mortgage as a way of compensations for carrying a lot of risks. They also require the shortest time of repaying.

If you have a good credit score that lies above 700, you will receive lower rates, enjoy instant cash loans in Singapore and as a result, pay less interest during the period of loan repayment. Scores higher than 800 are excellent. Here’s a summary of how the FICO model categorises credit score:

  • Excellent: 800-850
  • Very Good: 740-799
  • Good: 670-739
  • Fair: 580-669
  • Poor: 300-579

The importance of a credit score

Credit scores are vital for small business owners because they enable lenders to evaluate a person’s probability of repaying the loan in time.

Many financial institutions use credit utilisation or percentage of currently available credit to calculate a credit score. To stop any chances of lowering your credit score, never close a credit account that is not in use. Instead, store them separately labelled. Ensure that they don’t have outstanding balances and that all relevant details like the email address are correct. Ensure that none of them has autopay set-up and that your email and home address exists.

How they calculate your credit score

When calculating your credit score, financial institutions evaluate the following factors:

  • Payment history
  • Credit history length
  • Total cash owed
  • New credit
  • Types of credit

Your payment history reflects 35% of the credit score and exhibits the possibility of being capable enough of repaying the dues on time. The total amount owed reflects 30%. Credit history length accounts for roughly 15% of the credit score. Longer credit histories have lower risks for moneylenders to work with, and more data determines payment history.

The credit type used contributes about 10% and reveals whether you have a mixed instalment credit. They can include things like mortgage or car loans and commonly revolve around credit like credit cards. New credit counts for 10%. This is based on the number of new accounts you have, newly applied accounts that result in credit inquiries and when the most recent account was opened.

You can have varied credit scores because of several reasons. This is typically due to the different methods that different companies use to calculate the score.


Once you know what a credit score is, and how much it matters when it comes to your eligibility when applying for a loan – you’ll know how to maintain a good credit score and increase the chances of a successful loan application.