How Is Your Credit Score Determined

How is your credit score determined


Your credit score for a loan is determined based on payment history, debts currently owed, credit history, new credit and type of credit. These 5 factors are the main components used to tally your credit score. Other than a credit score, authorized moneylenders may take other ancillary factors into consideration when extending a loan to you. This includes age, salary, receipt of public assistance and any financial obligations that you have. 

The Effect of your Credit Score on a Loan

Have you ever wondered why the same moneylender in Singapore may extend different interest rate loans to two different parties? Or why two different moneylenders would give you different interest rates despite the same loan request being made to both? If so, then you may find the answer in the credit score. Often overlooked, a credit score determines your credit worthiness and has a direct impact on the risk the lender attaches to your loan. Hence, if you are only given a low approval rating, then you may only qualify for high interest rate loans.

The Need for a Credit Score

Your credit worthiness signifies the level of risk that a moneylender has to undertake in extending you the loan. In the worst-case scenario whereby you are unable to pay back the loan, the moneylender would lose much of the principle sum. This is commonly known in the finance industry as a bad debt. The interest charged on a loan is intended to make up for the risk of the debt going bad. Additionally, the risk covers for the lost value of the money loaned to you owing to inflation and opportunity cost incurred by the moneylender. After your initial loan application, a licensed moneylender in Singapore will conduct a credit investigation. Different moneylenders have different levels of acceptable risk that they are willing to undertake. However, generally speaking, the 5 main components of your credit score are widely used and in roughly constant proportions. In this article, we have summarised the key aspects and common mistakes that jeopardises a person’s credit worthiness. Use it to determine where your credit rating may be lacking and chart out what can be done to improve it.

Credit Score Components

Man making timely payment


Payment History (35%)

Your payment history for any credit or loan taken previously is a big factor in your credit score. This includes payments for your monthly credit card bills or housing loan installments. A failure to make payment on time would be a sign that you are untrustworthy and may not make good on this new debt. As such, consistent prompt payment for all credit for a duration of time would help to improve your credit score. 

Amounts Owed & History of Account (30%)

The second most important category of your credit score is the gross amount of existing debt that you are holding on to. Even if you have a history of making prompt payment, if your financial situation is at its breaking point, then moneylenders would be incurring too much risk in extending the loan. The difference between debt owed in comparison to the original principle borrowed and installment plan will also be taken into consideration.Ironically, having zero debt and thus no credit history is a negative here. Without evidence of your credit payment patterns, moneylenders will not know what amount of risk to accord to you.

Length of Credit History

Your credit history accounts for the length of time that you have been using credit. This is measured by how long your account has been open. Provided that you have not had a history of late payments, the longer your account has been opened, the better. As such, it is recommended that you do not close credit accounts even if they are inactive for a long duration of time.

New Credit (10%)

All the loans that you obtained, as well as the dates when you got them, will be reflected in your credit information. Some lenders may think that you are over-extending yourself, especially if they can see that you have acquired a loan recently. As such, speculation over your spending habits may lead to them attaching a higher level of risk to your loan, and slapping a higher interest rate on it.

Pattern (10%)

This refers to the activity in your credit line. The information contained here pertains to the way you utilize credits. It keeps a record of how frequently you borrow money and the amount of time you take to settle these loans. Many of the lenders rely on this information to determine the risk of you defaulting on the loan.Now that you have seen the importance of your credit score, the next thing to take into consideration is to focus on how to keep it high. You can do these tips: • Avoid defaulting in all your loans. This will be shown in your records. • Pay your obligations on time, as failure to do so is an indication that you may not be a good borrower. • Do not keep on extending the terms for your loans because it is a sign that you are not responsible in complying with the terms of the contract of loan. • Only take one loan at a time. As much as possible, do not send numerous applications for a loan.By following these steps, you stand a better chance in getting a higher credit rating for a personal loan in Singapore.

Fair loan agreement


Enquire For a Loan From JD Credit

Here at JD Credit Pte Ltd, we strive to achieve each and every one of our customers’ needs and wants. We are an organisation that provides loans with the best rates to any individual that is approved by the IPTO (Registry of Moneylenders). Our team of well trained and experienced staffs are obliged and dedicated to help our customers with their financial matters.Our vision is to achieve excellence when serving customers provide the best information and finest service for our customers and lead in the money lending industry.

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