When you need to borrow any money from a traditional lender like a bank, your credit report and score come to the fore. Lenders usually need your credit report to assess your creditworthiness and loan eligibility.
In Malaysia, you can get your credit report from two main sources – the Central Credit Reference Information System (CCRIS) and the Credit Tip Off Service (CTOS). While the CCRIS is a centralized system that’s managed by Bank Negara Malaysia and gets its information from financial institutions, CTOS is more of a private entity that gets its information from public sources.
The CCRIS report is a record of your debt repayment history and financial activities. It also includes all your outstanding credit facilities and credit applications—approved and pending—made over the last year.
A credit score is an important part of your CCRIS report and is a 3-digit, quantified representation of your borrowing history and repayment ability. More importantly, the lower your credit score is, more are the chances of you having unsettled debts and delinquent payments – signs that you’re not very good at handling debt.
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A high credit score, however, means that you’re great at managing your debt sensibly and have a positive repayment behaviour. Consequently, your credit application will have an increased chance of approval at more favourable terms.
That said, although credit reports provide complete factual information about the state of your finances, they do not give any opinion, like an endorsement or a blacklisting suggestion, on them. What this means is it’s completely the bank’s prerogative how it perceives your credit report/score while it deliberates offering a loan to you.
Confused? Don’t be. Read our Credit Reports FAQ for all the information you need to get started.
But why is it important to have a good credit score?
You just can’t undervalue what your credit score does for you. From getting you approved for financial assistance to better repayment terms in the form of a lower interest rate or a more flexible tenure, a good credit score can make a world of difference to your future finances.
On the flip side, a bad credit score can equate to higher interest rates, inconvenient repayment tenures, or even a complete rejection of your credit application. There can be plenty of reasons why you have a poor credit rating. The most common ones include:
- Irresponsible repayment behaviour
- Wilful loan defaulting
- Complete utilisation of your credit limit
Here are 7 useful tips to improve your credit score.
1. Right the errors, if any
A good place to begin your credit improvement journey is your credit report. To begin with, see if all your personal details and financial activities have been reported correctly. Errors are a possibility and overlooking them can cost you dearly. So, be sure that you report any disputed or fraudulent transactions at the earliest.
2. Work towards having a steady income flow
Having a steady income flow goes a long way towards ensuring your financial stability. As the chances of you missing payments get reduced, lenders will see you as carrying a lower risk when it comes to approving your financing request.
Most importantly, a steady income flow can help build your savings and investments. As such, your credit rating will only improve as you flourish financially.
3. Manage your debt more efficiently
Being in debt is bad enough. But, managing it poorly can put you in deeper trouble, and one of its direct effects is a low credit score. If you happen to be under considerable debt (excluding mortgages), guess you’ll have to do more than just getting stressed over it, and will have to act now.
Getting debt-free might be difficult (based on your debt situation) but certainly not impossible. Start with taking complete stock of your debt situation along with the interest carried with each debt, go on a financial diet and cost-cutting spree (here are some simple tips), sell old things, look for ways to increase your income (fun tips, anyone?) or make some extra money, so on and so forth. Feels overwhelming? Keep calm and read our detailed blog on how to build your counter-debt strategy for useful insights.
4. Maintain a consistent repayment routine
Missed or delayed payments are one of the more common reasons why your credit score takes a dip. Whether you’ve missed your payment because you mixed up the dates or delayed it because of insufficient funds, payments defaults can affect your overall credit rating significantly.
So, do what it takes to pay all your bills—credit cards or loans—on time. Make a note on your personal calendar, set a reminder on your mobile device or give your bank standing instructions to clear recurring bills. In addition, try and pay more than the minimum balance amount every month so you can chip away at that high-interest credit card debt as much as possible.
In case you have multiple payments to deal with, you can consider going for a debt consolidation tool to make things more manageable. That said, keep in mind that a debt consolidation loan is still a loan that you need to repay over time. So financial discipline is a must.
5. Close unused credit accounts
While it’s important that you keep your credit utilisation to a minimum, it’s vital that you don’t have a large amount of available credit either. Try and find the right balance between borrowing and repaying. Keep in mind that you should only borrow what you can afford.
A high percentage of available credit may be construed as your inability to handle more credit. As a result, your overall credit score may take a beating. So, do away with all those unused credit accounts as soon as you can.
6. Don’t apply for multiple loans or credit cards in a short period of time
When you apply for credit over and over again in a short time period, you risk portraying an image of being too desperate for borrowed money. Such an image can be detrimental to your future chances of getting credit.
Every time you apply for some form of credit, your credit history gets looked at thoroughly and this can cause a temporary dip in your score. Remember that more the number of applications, more profound will the effect be on your score.
7. Consider applying for a new loan on or after 16th of a month
The CCRIS system is updated on 15th of every month for every payment made until the end of the previous month. A pro tip would be to apply for a loan after 16th of a month in which all outstanding payments have been made before the end of the previous month.
With the number of people seeking credit only increasing, it makes sense for you to do everything you can to stand the best chance of your application getting approved. Improving your credit score is a big part of this commitment.
And if your credit report is in order and you’re looking for a personal loan, you’ll be well-advised to check out some of the best personal loan options in Malaysia right now, apart from some other awesome ongoing PL promotions.
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You may also like some of our other popular loan-related blogs:
- 5 Scenarios When Taking a Personal Loan Makes Sense
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- 6 Smart Ways to Stay Safe When Applying for a Personal Loan Online
- 7 Useful Tips If You’re Planning to Take a Home Loan in Malaysia
- 10 Basic Things to Know When Applying for a Car Loan in Malaysia