Credit Basics

Are You Credit Wise?
What do I need to know about credit?
The Basics are, well, basic. Follow these pointers and you’ll be off and running.
1. Look for hidden costs.

When applying for a credit card, look beyond “No Annual Fee” for hidden costs. There are other fees that can cost you more in the long run. For instance:

  • Late Fees. Most cards charge fees when payments arrive late. Most issuers have a set fee, while others charge a fee based on the amount of outstanding balance on the card. Typically, late charges are charged at S$45 to S$55 per month. Paying late fees just twice in a year could cost more than an annual fee - so take every step to ensure your payment arrives on time. If you are unable to pay the sum in full, do at least pay the minimum sum. However interest would be charged typically at 24% per annum for roll-over balance, including any new charges to the card.
  • Lost Card Replacement Fees. Some issuers charge cardholders whose cards have been lost or stolen more than once or twice. These fees are usually about S$20.
2. Build good credit.
  • Pay your bills on time

    As far as possible, strive to pay up in full and on time. Late or missed payments will certainly lower your credit worthiness. Therefore, be sure to check your bills to see when payments are due. Late fees and interest penalties add up quickly and make it hard to pay the balance.

    Payment history is an important factor in determining your credit worthiness. Since recent history carries more weight than what happened five years ago, getting in the habit of making on-time payments is an incredibly powerful way to improve your credit worthiness.

  • Pay down your debts and consider charging less

    Lenders like to see plenty of breathing room between the amount of debt reported on your credit cards and your total credit limits. The more debt you pay off, the wider that gap and the better your credit worthiness.

    When you pay the full balance on your bill each month, you are taking advantage of an interest-free loan from the card issuer. If you make only the minimum payment on a significant balance, it can take years to pay off the full debt.

    If you are unable to meet the payment deadlines, let your financial institution know and the reasons why.

  • Limit the number of credit cards you own

    Avoid multiple sources of credit. It is more manageable to keep track of 2 credit cards than 10. Opening a new credit line may reduce your credit worthiness, especially if you do not have a long and favorable credit history.

  • Cancel any unused cards

    If you have many credit card accounts but are only using a few, it is a good idea to close out the unused ones. However, it is advisable to keep the cards that you have had the longest and cancel the new ones as a long record of prompt payments will improve your credit worthiness.

  • Stay out of bankruptcy if you can

    Bankruptcy is the most catastrophic impediment to your good credit reputation -- far worse than delinquencies, loans or collections. Its impact, however, is dependent on how many defaults you made on your credit before you filed.

  • Don’t be afraid of credit counselling

    Most of us want to pay our bills on time and as agreed. However, there could be unforeseen circumstances such as loss of employment, business failure etc, which makes it impossible to settle the minimum payments on the due dates stipulated by the bank.

    If you’re overloaded with high-interest debt and are in danger of falling behind on your payments -- or you already have -- consider working with a nonprofit agency such as Credit Counselling Singapore to set up a debt repayment plan. They can help you to reschedule payments with the creditors, negotiate lower interest rates and help you pay off your bills within a few years.

  • Get your credit report

    Your credit report is a record of your credit payment history compiled from different credit providers. As most lenders will check your credit file to assess your credit worthiness prior to making a decision, a good credit repayment history will make it easier for you to obtain credit and to qualify for loans.

    By reviewing your credit report regularly, it allows you to be aware any information that is uploaded on your credit file. The other advantage of monitoring your credit file is that it protects against possible fraudulent use of your personal details to obtain credit.

    Click here to get a copy of your credit report from the Credit Bureau (Singapore)

  • Know the differences between a Debit Card and a Credit Card

    When you charge a purchase on your credit card, depending on the issuer, you generally have between 20 to 30 days to pay the bill. If you do so, it will be to your benefit as you’re taking advantage of the card issuer’s money as a no-interest loan, provided you pay the balance in full each month.

    On the other hand, when you charge a purchase on a debit card, your bank will deduct your deposit account immediately. If you do not have sufficient funds in your bank account, the transaction will not be accepted.

  • Don’t close accounts if you still have debt remaining on them

    Closing accounts before they are fully paid can hurt your credit worthiness. If you are planning on not using a certain credit card anymore, you should wait to close it until after you have paid it off. In order to keep yourself from charging, simply cut up the card into pieces and keep it in a drawer.

  • Don’t apply for lots of credit at once

    People are bombarded with new credit card offers all the time. While it may be OK to sign up for a new credit card, it is a bad idea to sign up for several at once. This sends a signal to creditors that you are desperate for credit and are a risk to loan to. Resist the urge to sign up for many credit cards at once and don’t overextend yourself.

3. Get the FAQs

The answers to some of the most common and most important questions are here. Read Frequently Asked Questions