What affects your credit score the most?
Need some cash for an emergency, purchase or investment? You have several options, including taking a bank loan, using the credit on your credit card, or borrowing from a licensed moneylender in Singapore.
For many, getting a bank loan (especially for an amount that isn’t large), can be troublesome and very time consuming. Meanwhile, our previous article highlighted the peril of “borrowing” from your credit card – where interest rates up to 26.9% await unsuspecting borrowers – so we hope you rule out that option, under any circumstance.
This leaves licensed moneylenders as the best option for many Singaporeans. However, many residents hold back as this question looms over them,
Does loan from money lender affect my credit score?
Don’t worry, we won’t clickbait you into reading the entire article in search for the answer. The answer is, quite simply, no – your credit score won’t be affected at all while taking loan from licensed money lender in Singapore.
To understand why, let’s dive into why many Singaporeans have this misconception in the first place.
Licensed moneylenders are not loan sharks
It’s important to know that a licensed moneylender is exactly that – a lender that is licensed by the Registry of Moneylenders Singapore and operates legally, under strict regulations and within our nation’s compliance-heavy financial environment.
Many a time, people, instead of visiting a licensed moneylender in Singapore, call upon individuals or unlicensed organizations for loans, for whatever reason that may be. Once these organizations lend the amount the borrower needs, they hike interest rates abruptly without intimating the borrower, and this may cause a lot of confusion and financial difficulty when it comes to repaying the said loan.
In several instances, it has been noted that these illegal and unlicensed moneylenders tamper with their account statements, thereby manipulating the actual figures. This could be done with an aim of changing the principal sum, the issue, and due dates, and pumping up the interest rates exorbitantly. Practices like these aren’t just unethical but highly illegal as well.
These unlicensed loan sharks do not follow the standard operating procedures that are laid down by law during recoveries and incidents of intimidation, harassment blackmails, etc. are commonplace when it comes to these loan sharks.
You can rest assured that skyrocketing interest rates and any practice of hanging animal heads at your door, are out of the question for legal moneylenders – and can only happen when borrowing from loan sharks (which are unlicensed and illegal).
Legal moneylenders are recognised by CBS
Because licensed moneylenders are recognised as legitimate businesses by the Registry of Moneylenders Singapore and Credit Bureau Singapore (CBS), the act of borrowing money from a legal moneylender won’t affect your credit score – as it would be similar to borrowing from other legal entities, like your bank.
In fact, legal moneylenders in Singapore even use CBS reports to determine a person’s credit worthiness, before deciding the terms of a borrower’s loan.
Top Factors that will affect your credit score
Now that we’ve determined your credit score won’t be affected by borrowing from a licensed moneylender, it’s time to explore the real factors that can lower (or raise) it.
1. Credit account history
A person with an established credit history will have a higher credit score than someone with an unfavourable or limited credit record. In simple words, this means if you have a track record of paying back your loans and credit cards on time, your credit score will reflect this positively.
What most people won’t realise though, is that if someone with limited or no history of borrowing (and returning) money, will have a worse credit score than a frequent borrower – as there is also no history of the person returning money on time.
Simply put, borrowing money can positively impact your credit score – just be sure to return your loans on time! (No matter who you’ve borrowed from.)
2. Not making timely repayments
As referenced above, while it’s fine (and even advantageous) to borrow money from banks or licensed moneylenders, your credit score will be negatively affected if you fail to make repayments. This is true regardless of the type of loan done, or the institution the loan was made – whether it’s your mortgage, monthly credit card payment, bank loan, etc.
The lesson here? Make your repayments on time to keep your credit score high!
3. Recent credit
Do you only borrow money on occasion, and in moderate amounts? Or are you overextending your finances within a short period of time? CBS advises residents to only apply for new credit in moderation, and if your bank loans and other financial records should that you could be overborrowing, your credit rating could fall.
4. Enquiry activity
Interestingly, your credit score can drop even without you taking (or missing repayments on) any loans – and this may happen if there is an influx in enquiries into your credit report.
This occurs because whenever you try to take on a new personal loan or home loan or sign up for a new credit card (among other reasons), the financial institution may make an enquiry into your credit report. Get too many of these queries coming in, and your credit score may be lowered.
Find out your credit score from CBS
For more information on what could affect your credit score, we recommend going directly to the source and visiting CBS’ website. There, you will also find a collection of factors that can lower your credit rating – and you can rest assured that borrowing money from a licensed moneylender in Singapore isn’t on the list.
While you’re there, you can also purchase your credit report from the bureau for just over $6, should you wish to find out your current credit score.
The importance of keeping your credit score high
We hope this article has thoroughly explained why borrowing money from a licensed moneylender in Singapore won’t affect your credit score, and has put your mind at ease. More importantly, we hope you have a better understanding of what can affect your credit rating – and what you can do to raise your score, so getting loans from legal entities will be easier, faster and more seamless.