I’m Only 21 Years Old. Do I Need A Credit Score?

Most of us are unaware of how important it is to start building our credit scores early in life. We only realise this 3-digit number plays a vital role in getting our bank loans and credit card applications approved later on. Read on to find out why you should start establishing your credit score at a young age.


Isn’t it awesome to be 21? You might be at the final stages of your university education, or you could be starting a career. Even in the pandemic era, the world is filled with endless possibilities. There are still university degrees to be earned, career ladders to be climbed, startup ideas you’ll want to realise, and many, many more things that you wish to accomplish. Bursting with energy and eager to adapt to the new normal, you can’t wait to begin this new chapter in your life: adulthood.

Adulthood comes with a new set of financial responsibilities, as you might be purchasing your first car, health insurance and other necessities soon. There will be a time when you have to navigate through your first bank loan application (most likely, to pay for your further studies or buy a car) and credit card application (perhaps, as a financial backup during emergencies).

During these applications, you may be wondering about how banks decide if you’re qualified for a loan/credit card. Since these financial institutions don’t know you well enough to gauge your financial health, they refer to something called “credit scores” to gain a better understanding of the potential risks that come from lending money to you. 

“Hold on. I’m only 21. I’ve never borrowed money in the past. Why should there be any risks?” 

That’s a question that may have crossed your mind. True, you might have never borrowed money previously, so you’ll have no credit history (a record of your ability to pay off credit card bills, loans and other debts). These records will appear in the credit reports generated by credit reporting agencies. Based on your credit reports, the agencies will then calculate your credit score.

As you have no credit history, and thus no credit score, banks may perceive you as an inexperienced credit consumer with no proven record of repaying money. So it might be harder to qualify for loans, and if you do, there’s a chance that you could end up servicing a higher interest rate.

That’s because when banks review your credit report and credit score, they’re interested in how reliably you pay off your debts in full and on time. (Your past payment performance is usually considered a good predictor of your future payment behaviour.)

You’ll be hearing more about credit scores throughout your life, especially when it’s time to get financing for that sleek coupe you’ve always wanted to own and drive, a gorgeous home for your new family, and even to build your dream company.

In a sense, having a good credit score is like the key that opens doors to some of the best financial deals in life – including favourable interest rates, premium credit cards, and a higher chance of getting your loan approved.

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If you have no credit history, and thus no credit score, banks may perceive you as an inexperienced credit consumer with no proven record of repaying money.

“Okay, so how are credit scores calculated?”

Your credit score will fall within the range of 300 and 850. Credit reporting agencies have different formulas to calculate your score, but the evaluation is generally based on these factors:

  • Payment history (a record of the payments you have made for credit card bills, bank loans and other debts)
  • The amount of debt you have in comparison to your credit limit
  • The length of your credit history (how long you’ve used credit)
  • The types of accounts you have (e.g. home loan, car loan and credit cards)
  • Recent credit activity (if you have recently been approved for loans/credit cards)

As you can see, payment history and credit history take up a significant portion of your credit score. For instance, according to credit reporting agency CTOS’ calculations, payment history makes up 45% of your credit score, while 7% is based on the length of your credit history. So the sooner you start building a credit history filled with prompt repayments of your bills and loans, the better your credit score will be

Related: Ultimate Guide To Credit Scores

“How do I start building a credit history (and credit score)?”

Building credit history will require some time and patience, but it isn’t difficult. The first thing to remember is that you shouldn’t apply for a bank loan or credit card just for the sake of improving your credit history. Servicing a loan or credit card requires financial commitment, so you should only apply for these when you’re really in need of funding. It’s also important to make sure that you have the resources to service the repayments.

Besides, if you don’t have a credit score, you won’t be able to qualify for bank loans and premium credit cards that involve huge amounts of money and long periods of repayment – such as home loans and platinum cards (well, not yet, anyway). 

So what you can do now is to focus on any existing loans you currently have…

1. Start paying off your student loans

If you have taken out a student loan (such as PTPTN) to pay for university, servicing your monthly payments is a good way to start building your credit history, and subsequently your credit score.

Once you’ve started a new job, do allocate a percentage of your salary to pay off your student loans promptly every month. Most of these loans have low interest rates, so you can establish a track record of timely repayments without much financial pressure. 

The government has also made life easier for students and graduates who have taken PTPTN loans, as Prime Minister Tan Sri Muhyiddin Yassin recently announced that PTPTN borrowers can apply for a three-month loan repayment moratorium. (Borrowers will have until March 31, 2021 to submit their applications.) 

According to Bank Negara Malaysia (BNM), the moratorium will not affect borrowers’ Central Credit Reference Information System (CCRIS) reports. (The CCRIS is a platform that compiles credit-related information on all borrowers of participating financial institutions in Malaysia.)

In addition, credit reporting agency CTOS has also explained that payments deferred under the moratorium will not affect your credit score or your ability to apply for loans in the future. The agency has assured the public that these deferred payments will not be reflected as defaulted payments in their credit reports, and subsequently their credit scores.

So if you have deferred payments for your student loan temporarily because of COVID-19-related issues, you can use the breathing space to look for a stable job and prepare to establish a good credit score later on.

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If you have taken out a student loan, servicing your monthly payments is a good way to start building your credit history, and subsequently your credit score.

Related: Bantuan Prihatin Nasional 2.0: Here’s What You Need To Know

2. Get a zero annual fee credit card. Pay your bills on time.

Getting a credit card with no annual fee is one of the easier ways to improve your credit score. As there won’t be any annual fee charges, you can minimise your credit card bill by using it only for petrol expenses and emergencies. Be sure to pay your monthly bills in full and on time, as this will be reflected in your credit score.

To avoid accumulating credit card debt and interests, you should always spend within your means and use your credit card responsibly. If you can handle your credit card repayment at an early age, you’ll be able to develop the financial discipline to manage even bigger repayments later on in life – such as bank loans for your car, home and business. 

Related: 6 Best Credit Cards For Malaysian Gen Zs

“How do I avoid getting a low credit score?”

If you have a bad credit score (between 300 and 650), there’s a higher chance that you might be rejected for a new credit card or mortgage. You may also have to pay higher interest rates.

So here are some valuable tips on what you shouldn’t do when you’re building up your credit score. Let’s get you started on the right note!

1. Avoid getting into debt

As mentioned previously, it’s important to pay your credit card bills and loans in full and on time. Banks have the right to increase your interest rates and charge late payment fees if you have been missing your repayments

Besides facing the burden of paying off a large sum of debt, your credit score will also be severely affected. According to CTOS, 30% of your credit score is based on the amount of money you owe. Thus, having huge debts will definitely lower your score.

Related: 4 Ways A Bad Credit Score Can Impact Your Life (And How You Can Fix That)

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Missing payments will not only affect your credit score – you’ll have to pay penalties and late fees too.

2. Make sure the agencies have your correct personal info

Once you have attained your first credit card or loan, you should apply to check your credit score and report within the first six months to make sure all of your personal details are correct. Yes, something as simple as an outdated or incorrect residential address can lower your credit rating and prevent you from taking out a loan!

If you spot any incorrect information in your file, updating your personal details is a quick, hassle-free process, as agencies such as CTOS also provide a step-by-step guide on how to correct your report inaccuracies. So be sure to contact your credit reporting agency for assistance. 

Related: 6 Ways To Improve Your Credit Score

We hope you’ll find this guide useful when you start establishing your credit score. If you have any questions regarding this topic, give us a buzz on Facebook, Instagram or Twitter.