By Mangalesri Chandrasekaran
A credit report plays a major role when you’re applying for loans from any financial institution, be it a personal loan, hire purchase loan, mortgage loan, credit card or other loans.
The loan amount, as well as the interest rate offered by the banks is primarily influenced by one’s credit report.
In general, a credit report helps banks to check your creditworthiness.
A credit score, on the other hand, is the number generated from this report, by analysing the data bank uses to evaluate your loan application.
A CTOS Report and CTOS Score is among the method widely used to rate applicants, which turns your credit history into a three-digit number.
The CTOS Score is a number between 300 and 850 which instantly tells a lender of your creditworthiness.
It is important to get a higher score, as a lower score reduces your chances of obtaining a loan.
However, the banks in Malaysia do not solely rely on the CTOS Score and have their own method to determine if you should be approved.
So your chances of obtaining a loan actually depend on the bank you applied at, and the specific processes that they use to evaluate your creditworthiness.
There are three important factors which determine your credit score by a bank, which are:
The 3 C’s – Character, Capital And Capacity
Basically, the 3 C’s works as a determining factor for the banks when approving your loan, and deciding on the amount and interest rate.
Your character is measured based on your attitude towards your loan. Among the things taken into consideration when analysing your character are your;
- Credit history (past borrowings)
- Reliability on debt payment
- The number of years lived at the current address
- The duration of your current employment
Your capital refers to your valuable assets which can be used as a collateral.
Among the things included in capitals are personal and investment properties, savings and other investments – which can be used to repay the debt when your income is insufficient.
Your capacity refers to your ability to repay your debt, which depends on your income.
You need to have sufficient cash flow and this can be determined by your:
- Current income
- The number of loan repayments
- Current living expenses
- Current debts in total
- The number of dependents
So what can one do to improve the credit score?
Ways To Improve
Having a good credit score is important to have successful and beneficial dealings with financial institutions.
A bad credit score can result in your application being rejected, or you’ve been imposed with a higher interest rate. But there are certain things can be done to improve one’s credit score.
Even though this can’t be done overnight, yet it can be done over a certain period of time.
1. Make Prompt Payments
It is vital to pay your bills on time, as bank loves reliable and trustworthy people.
Your history of late repayments can be easily accessed by banks via the Central Credit Reference Information System (CCRIS).
Banks can also easily request for your credit history from Credit Reporting Agencies such as CTOS.
Generally, if you have a bad payment record, it will be more difficult for you to get approved for a loan
2. Have A Stable Income
Having a steady job with stable income would help to improve your credit score, as it signifies that you have a lower chance of missing your monthly repayment.
The bank sees you as a low-risk borrower and this helps with your credit score.
3. Possess Own Assets
Having assets such as real estate, investments and savings helps to improve one’s credit score as well.
Banks see this as you are financially stable and this will be beneficial to improve your credit rating.
4. Minimise Your Debt
To have a better credit score, try to reduce the quantity of your debts.
While providing a consistent monthly repayment helps to generate a good credit score, it may be necessary to reduce the total amount you owe as well.
If you have credit card debt, try to reduce that first as it will have an immediate impact on your credit score.
It is never a good idea to take up a new loan, with many debt obligations at hand, as banks are fully aware of your borrowings elsewhere.
5. Being A Loyal Customer
Banks typically loves the customers who have a long credit history with them. This will help to increase your credit rating as banks love to treat their loyal customers better.
But being a creditworthy loyal customer is vital to improve your credit score.
The above-mentioned tips can be used to improve your credit score if you’re interested in applying for a loan with any banks, as it will aid in having a good credit report.
Before making a loan application, you can take the first step by finding out your personal credit report. CRAs such as CTOS offer a basic credit report for free on their website (http://www.ctoscredit.com.my/myctos
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