Why does having a credit score matter?
A credit score is usually derived from a person’s credit report. The report will show your credit payment ability such as 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’s like a history of your finances. In Malaysia, there are three ways you can get your credit report to see how good (or bad) your score is. The main sources for credit ratings are CCRIS, CTOS and Personal Credit Report
You can walk into any Bank Negara branch to ask for a free copy of your credit report. Bank Negara’s report provides information taken from the Centralised Credit Reference Information System (CCRIS). For other types of information, like legal history, trade references and advice on how to improve credit scores, you can opt for private reporting agencies like such as CTOS or RAM Credit Information Sdn Bhd (RAMCI). These credit reporting agencies can provide you with a more in depth credit report. All of these credit reports then have their own scoring system, for example, for CCRIS a score of AA means you have good credit score.
If you do not have a credit card, or you currently do not have any loans under your name, it means you won’t have a credit score, which may cause you problems in the future. For example, you decide you want to settle down and purchase a house. You will then need to apply for a home loan as most people cannot afford to pay for a house with cash. But your housing loan application may not be approved by banks because you don’t have a credit score.
Banks will look at an individual’s credit report to calculate and determine their debt service ratio before rejecting or approving the application. This is because banks do not want to take on a risk by approving your application, so they look at your credit report and use it as one of their tools to assess your financial health. If you have no credit score, banks do not have access to your financial history to see how good (or bad) you are with your payments.
What to do if you don’t have a score
Check your existing loans and financial commitments
Even though you may not have a credit card, a car loan or a personal loan right now, you may still have other financial commitments. These are things such as subscriptions to telecommunication services like a monthly postpaid plan or even a broadband plan. So before you work towards actually building a credit score, make sure you are on top of all your other bills.
Get a basic credit card
Once you’ve sorted out your other financial commitments, it’s time to get down to business. One of the easiest ways to get started on creating your credit score is by getting a credit card. Why? Because with a credit card, you will be creating a credit history when you begin using it. You may be put off using credit cards because of the horror stories of people being bogged down by their credit card debts.
But that only happens when it is used irresponsibly. When used right, a credit card can simplify your life and also help you save money. For credit cards, try not use more than 30% of your total credit limit, as advised by KC Wong, CEO of Credit Bureau Malaysia. You should also make sure you pay your credit card instalments on time and pay off more than the minimum amount every month to make sure you have a good credit score. To help you choose a suitable basic credit card, compare for free by clicking below.
However, do take note that if this is your first time applying for a credit card you will need to have at least 6 months salary and EPF slip. These two documents are needed in order to get your credit card application approved if you do not have a credit score yet.
Even once you have a credit score, it is equally important to maintain a good score. Our advice? Make sure you do it right in the beginning by following our guidelines above. Remember, make sure your credit score shows that you have a history of responsible repayment instead of showing your bad payment habits.