6 Ways To Improve Your Credit Score

This article was first published in June 2017 and has been edited and updated for accuracy and clarity.

Don’t limit your future by ignoring your credit score, here are tips you should follow to help you improve your credit score.

What is a credit score?

A credit score is usually derived from a person’s credit report. The credit report will show your credit payment ability. For example, if you pay your credit card or loans on time or if you have been missing payments, along with all of your other financial commitments. It is like a history of your finances. You can get your credit score through CTOS (Credit Tip Off Service) to see how good, or bad your credit score is.

CTOS is a private company which provides credit reporting and is also widely used by financial institutions to determine an applicant’s creditworthiness. CTOS is known to be widely used in Malaysia by banks and financial institutions.

CTOS obtains the credit related information from various public sources such as:

  • National Registration Department
  • Malaysia Insolvency Department
  • Companies Commission Malaysia (CCM)
  • Publications of legal proceedings and notices in newspapers and government gazettes.

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CTOS provides credit reporting and is also widely used by financial institutions to determine an applicant’s creditworthiness.

The types of credit-related information that will be featured in the credit report from CTOS include bankruptcy, legal action and case statuses.

You can also get your credit report from CTOS through MyCTOS. You just have to register to obtain your CTOS User ID. Once your ID has been activated you will access your credit report from MyCTOS anytime over the internet, and even through the CTOS app.

Does it matter if I have a bad credit score?

Yes, it matters if it is bad because your credit score is important and affects your chances of qualifying for bank loans and credit cards. It will be used by banks and financial institutions to determine whether or not to approve your loan/credit card application.

Aside from that, the credit score will also be used to determine how much interest to charge you on the financial products you apply for. Sometimes, it is even used to decide whether to give you a job. So as you can see, it is important to make sure that you keep your credit rating at a healthy level.

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If you have a bad credit score, the key is to take action now and ensure that you can improve your score quickly.

What should I do if I have a poor credit rating?

If you have a bad credit score, don’t panic. The key is to take action now, this is to ensure that you can improve your credit score quickly. After you have successfully improved your credit score, you should then make sure you maintain your good credit score.

How do I improve my credit score?

Some may think that their credit score is complicated and hard to understand. But don’t worry, we have compiled a list of ways you can follow to improve your credit score. If you follow these steps and adjust your spending habits, you can be well on your way to an excellent credit score.

1. Ensure your personal information is correct and updated

If you move, don’t forget to inform companies of your new address. You should also check to make sure credit reporting agencies have your correct and updated details, so that your latest credit reports (records generated by credit reporting agencies which compile your credit history)  will reflect the correct personal information. Believe it or not, but something as simple as having multiple addresses listed on your file could lower your rating and prevent you from taking out that loan. 

Updating your personal details in credit reports can be 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 help.

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

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Having multiple addresses listed on your file can lower your credit score.

2. Get out of debt

Avoid defaulting on your debts, even if you are struggling to pay your minimum. What you should do is to contact your lender and organise to amend your repayment schedule. If you need tips on how to manage your money and get out of debt, why not read our blog posts here, which includes all the best steps to take to get on top of your debt. You can also get free financial help and advice from AKPK.

Related: 7 Strategies To Get Out Of Debt Fast During The COVID-19 Pandemic

3. Don’t make companies chase you

Do you always forget to pay your bills on time? Guess what, you not only risk having to pay penalties and late fees, but you are also damaging your credit score. You need to show companies that you are a disciplined customer. Even constant late payment for phone bills and internet bills will be recorded into your credit score and lower your score. This will then show banks and financial institutions that you don’t have your financials under control. So write it in your diary, set an alarm, and a reminder. Then make sure you pay on time!

Related: When’s the Best Time to Pay Your Credit Card Bill?

4. Check your financial relationships

It may not seem fair, but did you know that it’s not only your financial behaviour that can affect your credit score. Your financial relationships with others can improve your rating, but it can also have a toxic effect. For example, be careful when you share bills or have supplementary credit cards. A late repayment on your supplementary cards also affects your credit score. If possible, keep your finances separate because this will allow you better control over  your own credit score.

Related: We Asked Malaysian Bloggers For Financial Management Tips For Couples!

5. Build up your credit history

Some people have no credit score at all, and this can actually be just as bad as having a bad credit score. You may be managing your money well, and have never had the need to borrow money, but a lack of credit history can actually be viewed negatively by credit rating agencies. Why not get yourself a credit card, and enjoy the many advantages and rewards it offers? Just make sure you’re careful with which credit card you choose. Read the small print, and decide which credit card suits your lifestyle and spending pattern.

You can use the free credit card comparison tool to help you to do this in minutes, and we will even highlight the reward schemes you could be benefiting from. But always ensure that you pay off your outstanding balance at the end of the month, otherwise you will end up with a poor credit score, and that’s exactly what we’re trying to avoid.

Related: How Cancelling Your Credit Card Can Affect Your Credit Score (Instead Of Helping It)

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By using your credit card in a responsible manner, you can build up your credit history, and subsequently your credit score. 

6. Having multiple credit cards can help you

Having several credit cards can help improve your debt utilisation ratio (which is calculated based on your present amount of credit card debt compared to the credit limit of all your cards combined), and subsequently your credit score. 

You can improve your debt utilisation by maintaining your current amount of spending (despite having new cards). This way, your monthly credit card debt remains the same while you enjoy a higher combined credit limit with every new card you receive.

For instance, you might have five credit cards, and each one comes with a RM5,000 credit limit. These five cards will give you a combined credit limit of RM25,000. If you only charge RM5,000 to your default credit card each month while rarely using the other cards, your debt utilisation ratio is only 20%. (Just keep in mind that the lower your debt utilisation ratio, the better it is for your credit score!)

How to calculate your debt utilisation ratio for the scenario above:

RM5,000 ÷ RM25,000 x 100% = 20%

However, you should first find out if you can keep track of your spending with multiple credit cards. When you’re swiping and tapping your credit cards anytime, anywhere, it’s easy to forget you’re spending borrowed money. So remember to monitor your expenses.