By Mangalesri Chandrasekaran
How many of you have claimed your free credit report this year? When you apply for any type of loan from a financial institution, it is always the credit report which becomes the determining factor of your loan approval. For this reason alone, checking and monitoring your credit reports regularly is vital.
Having a good credit report ensures a solid credit score, which is no different than choosing the right stock or mutual fund. With a good credit score, you will be able to pay less interest on loans, which will save you money every month.
Let’s see what the property experts have to say about credit reporting and scoring:
From A Guru’s Perspective
Khalil Adis Consultancy founder Khalil Adis: A good credit rating is extremely important. Your credit report stays with you for two years and it will show if you have missed any payments for your loans and credit cards. In Singapore, the Credit Bereau Singapore administers the score from 1000 to 2000 points. Those at the bottom 1000 means they are highly likely to default on their loans while those near the 2000 scores are less likely to miss their loans. In Malaysia, the CTOS credit score is calculated between 300 and 850.
It is extremely important for you to have a history in financing to secure loans, at least a credit card. This is especially relevant to Gen Ys who want to buy their first home and need to secure a loan.
A worrying trend I noticed is this: a significant number of Gen Ys do not pay their credit card bills on time. According to the Asian Institute of Finance (AIF) 2015 survey showed that majority of Gen Ys (38 percent) are living in high cost of borrowing while 47 percent are engaged in expensive credit card borrowings.
In addition, when it comes to financial literacy, 58 percent of the respondents rated themselves as having average financial knowledge. Meanwhile, only 28 percent felt confident in their financial literacy and ability to handle day-to-day financial matters. Gen Ys are also experiencing money stress with 70 percent who own credit cards tending to pay the minimum monthly payment while 45 percent do not pay on time.
My advice for Gen Ys is that they need to live within their means, reduce their debts and pay at least the minimum sum every month on time, in order for them to secure a home. This will enable them to enhance their net worth. For those with bad credit rating, I would advise them to seek professional advice to consolidate their debts. Once this is cleared, they should apply for a new credit assessment and if the credit rating is good, I would advise them to secure a home and reapply for a bank loan.
MNP Auctioneers director Stephen Soon: Credit Reporting is vital nowadays not only to check on a person’s credit standing but also to secure loans. There should be more public education and awareness program about Credit Reporting to promote prudent financial planning and management.
This is critical as the recent news claimed that Malaysians have the most debt in Asia. High debts can sometimes result in deferring payments, and this will eventually lead to a poor credit score and then loan rejections.
Financial institutions should take the lead to advise their clients or potential clients accordingly. Creating awareness is the important thing to do now, as educating will help people to know what the banks are looking for. Since Bank Negara Malaysia is tightening the lending rules, knowing the way to acquire a loan will further help many to purchase their dream home.
Smart Financing CEO Gary Chua: Maintaining a good credit score or record is vital in securing financing from banks with the lowest interest rates and best margin!
To maintain a good credit score, one should always make prompt monthly payments in the last 12 months. Do not miss any payment or at least your minimum payments on credit card; have a balanced portfolio between your secured loans (with collaterals) and unsecured loans (credit cards and personal loan); do not apply for unsecured loans excessively in a short period of time, especially when you plan to apply for a housing loan – as you may be perceived as cash hungry and do not have high credit card utilisation on any of your credit cards in your CCRIS.
The rule of thumb is to ensure your monthly repayments for all facilities are less than 60% of your net income. Get to know what the banks are looking for, and mold your credit scores in a way that the bank will finance you without a second thought.
Superior Wealth Mastery founder Alan Poon: Let’s face it. The truth is: We need the banks. The moment we step into the bank to submit our loan applications, we have subjected ourselves to requesting some form of financial assistance based on our proposed collateral acquisition. Now, this does not mean we are at the mercy of the financial institutions since one of their main roles in business has always been about providing loan facilities to their prospective client.
Why do I say partner? As much as we need the bank’s approval for the financing that we applied for, the banks are also evaluating us as their potential partner to fulfill the full tenure of loan repayment installments. Hence, it can only be in order that the banks perform their due diligence at the best of ability to ensure the chances of defaulting the agreement by the approved partner are kept to a minimum.
It is therefore, a norm that the credit report is used as a gauge for preliminary assessment to most banks. Every one of us has to update this piece of information that will be used when we are to seek credit facility. It is like a resume to gain access to an employment. If you know you need that job, wouldn’t you prepare your resume in a manner that will increase your chances of getting the vacancy filled and set aside your competitors? Likewise, the banks would prefer clients who are credit trustworthy in all areas of these reports.
When we agree that the banks are the core drivers when purchasing properties, by way of assertion of quality check through credit reporting and record of their ‘partners’ in acquiring these assets, we will then do whatever it takes to avail the necessary clean state of our records, in order for the banks to lend financial support for the purchase.
As the saying goes; “Once we know the why; the how will come!”. Check your credit report more than once every year and try to improve them constantly.
Mangalesri Chandrasekaran, Editor at PropertyGuru, edited this story. To contact her about this or other stories email mangales@propertyguru.com.my
