What Is A 'Credit Score' And Why Is It Important?
Your credit score reflects your creditworthiness to banks. A good credit score could mean enjoying better credit terms and better interest rates. On the other hand, a bad score could shut you out from banks ever extending a loan or issuing a credit card to you. It takes years to build a good credit score, but it can all be undone very easily. In fact, many of us hurt our own credit scores without even knowing it!
Here are the Top 11 most common ways Malaysians hurt their own credit scores:
Being Late on Your Credit Card and Loan Payments
By far the most prevalent reason. Late credit card and loan payments are reported by banks to the Credit Bureau of Bank Negara and stays in CCRIS for a period of twelve months. This includes PTPTN loans.
Thus, make sure you clear outstanding debt promptly by setting up automatic payments and closely monitoring all your credit card bills and loan instalments.
Replacing Your NRIC Too Many Times
Did you know that every time you replace your Malaysian Identity Card (NRIC), a number on the back of your NRIC indicates how replacements you have had? Having too many replacement NRICs can hurt your credit score, as lenders might view you as at risk for fraud.
Then again, you will be an easy target for identity fraud. Some but not all company like RAMCI provides an identity protection plan. At least you'll get a personal peace of mind.
Owing Money to Telcos, Utilities & Banks (Even parking summons!)
When an account goes into default, regardless of the amount owed, many telcos, banks, and utility companies will remark on a person's record with credit reporting agencies like RAMCI. Some common reasons include:
- Unused bank accounts not having enough money to cover the service charges
- Owing telco's small amounts of money after service has been terminated
- Unpaid parking summons
People have been known to get blemished records for owing amounts as low as RM10. And these can hurt your credit score. So it pays to be vigilant and settle these amounts, no matter how small.
Being Completely Debt Free
This may seem counter-intuitive. But contrary to what some people think, not having any loans or credit cards at all is actually bad for your credit score. This is because banks will not have any track record of your past repayment behaviour. Lenders consider a lack of credit history as a negative point.
Should you fall into this category, this can be easily remedied by applying for a credit card online.
Having High Credit Card Utilization
A general rule is to try to keep credit card utilization ratio below 70% of your combined credit limit. Anything beyond that tends to upset your credit score. One trick people use is to have multiple credit cards. This increases their combined credit limit and lowers their overall total credit utilization ratio.
Having Too Many Credit Cards
But having too many credit cards can also be harmful to your credit score. The general rule is that 3 cards from different banks is safe. Beyond that, the more you have, the more risky you are as perceived by banks.
Standing as Guarantor
Be cautious when standing as a loan guarantor to friends and family because if they default or delay payment, you will be liable for the debt as well. This means, your credit score could be affected just as much as someone who fails to make repayments on borrowings and might remain as such until all arrears are cleared.
Applying for Excessive Number of Facilities Simultaneously
While it's advisable to shop around when applying for a loan, it's not advisable to apply for too many credit facilities at the same time. This is particularly true of personal loans and credit cards because the practice of aggressive loan and credit applications may indicate desperation to obtain funds.
It's always best to research and plan out your loan applications first than to make multiple applications indiscriminately.
Undergoing Debt Restructuring / Rescheduling, or Taking a Payment Holiday
Restructuring, rescheduling your loans or requesting a payment holiday from banks will cause banks to apply a special status tag to your CCRIS record. While it might save you some money, such measures are only recommended as a last resort. Having a special status in your CCRIS record is very harmful for your credit score and significantly affects your chances of getting a loan in the future.
Writing cheques that bounce will cause you to be placed on the DCHEQS system. DCHEQS is a system used to keep a history of dishonoured cheques issued by people. Being on this list will hurt your credit score.
Not Actively Managing Your Credit Profile
More often than not, negative credit scores persist because you haven't checked and aren't aware that a problem even exists. There could be late payments or legal actions against you which you never knew about, or outdated information on your records. It is not uncommon for legal disputes or debt that has long been settled to remain un-updated in these systems. Therefore, it is important for everyone to know what their own credit profile and to manage it actively.
If you, like many other Malaysians, are wondering how to manage your own credit profile, the first step is to obtain a copy of your personal credit report which you can get for free from My Credit Info by RAMCI, a leading credit reporting agency in Malaysia.
With this information, you can then take control of your credit profile and take the necessary actions to improve your score.
Check Your Credit Report Before It's Too Late
By RAMCI. Posted on 22 August 2016
When one thinks of theft, most often it is of a physical robbery where tangible possessions are lost in the act. Little do Malaysians realise that identity theft can be equally devastating. RAM Credit Information Sdn Bhd (RAMCI)'s maiden consumer survey shows 14 percent of respondents experienced identity theft first hand and 26 percent knew someone who had been a victim.
Malaysians are increasingly vulnerable to identity theft as the country progresses towards becoming a high-income nation. Internet savvy citizens are making more purchases and transactions online. This trend is tempting ground for identity thieves. Other methods used to fraudulently obtain one's personal information are through stolen MyKads or credit cards, loss of personal documents in the mail and inadvertently giving out personal information via scam phone calls and emails.
Ms Dawn Lai, CEO of RAM Credit Information Sdn Bhd (RAMCI) advised consumers, "There are several steps one can take to keep an eye on their credit transactions and ensure there is no identity theft. Checking your credit card bill for suspicious transactions is a good practice. Beyond that, a comprehensive check on all potential credit platforms should be done. This can be achieved by checking your personal credit report."
Lai's advice is pertinent considering that one of the methods of identity theft is to apply for loans or credit using the victim's identity. These transactions, if undetected, would not show up on any bill until the loan is approved, paid out to the thief and the repayment bill is sent to the victim. It is important to check your credit reports regularly to identify illegal activity. Early detection is key to minimising the damage that mistakes and fraudulent activities can have on your credit profile.
According to RAMCI's Consumer Survey, there is a lack of awareness among consumers about credit reports. While over 70 percent admitted to having some knowledge regarding credit reports, only 28 percent took the trouble to view theirs. Of those who viewed their credit reports, up to 30 percent of respondents did it when their legitimate credit applications were rejected while 13 percent did it because of suspected identity theft.
Lai said, "By then, it may already be too late to prevent the fraudulent transaction. The process to undo or resolve this fraudulent transaction may involve the police, banks and other parties and take months if not years. In the meantime, the victim may have missed opportunities for investment or to make a purchase such as buying a home."
This explains why RAMCI has placed urgency to educate consumers on the importance of viewing their credit reports to safeguard against identity theft. A credit report is a record of one's borrowing history and repayment behaviour. It includes a record of one's credit cards, loans or other credit facilities applied for and even if there is involvement in litigation cases. Lai shared that she has encountered consumers who viewed their credit reports for the first time only to discover a loan in their name which they have never applied for.
For the average person, checking their credit reports at least once a year is the least they should do. However, a more comprehensive protection is possible such as through RAMCI's identity theft protection plan, My Credit Watch (MCW). A plan such as this checks and monitors your credit report daily and alerts you to key changes. Alerts are sent to the subscriber whenever credit grantors make a search on you, legal or bankruptcy proceedings are initiated against you, or even when new applications are submitted in your name.
For cases where there is an inaccuracy or dispute about information in the credit report, Lai encourages consumers to contact the credit reporting agency (CRA). "If you have documentary evidence to show the inaccuracy of the report, the CRA is duty bound by the Credit Reporting Agency Act 2010 to verify and rectify the information free of charge. Our survey shows that more than half of respondents are unaware of the CRA's responsibility to provide accurate and updated information to its subscribers."
As Malaysia enters a challenging economic year, RAMCI is stepping up its consumer educational efforts and hopes to see many more take control of their credit information and protect themselves against identity theft. Lai stressed, "Don"t wait till you notice suspicious activity in your credit profiles. Take the initiative to keep up to date and monitor your credit report to avoid identity theft."
Find out more about RAMCI Identity Protection Plan, My Credit Watch (MCW).