Disclaimer: This article is contributed by Credit Bureau Singapore. It's essential to note that valuable insights expressed in the article are about a deeper understanding of credit profile based on their thorough research and industry expertise.
What leads to bad debts?Bad debt occurs when the debtor has defaulted on payment or is experiencing financial difficulties that makes it impossible for them to repay the money that they have borrowed or taken on credit terms. Most of the time debtors feel the daily struggle of paying for their own basic expenses using cash and find themselves relying heavily on credit terms to make ends meet.
Individuals who mismanage their finances struggle to meet their payment obligations, resulting in overdue payments and bad debts overtime. There are many reasons why someone can lead to bad debts but generally it could be due to a combination of inadequate knowledge on how to use credit facilities, financial instability, poor budgeting or bad influences that led them to make poor life choices.
Why is maintaining a good credit reputation important?
A Credit Report reflects your current financial standing of an individual’s personal credit facilities. Credit Bureau (Singapore) Pte. Ltd. (CBS) is Singapore’s most comprehensive credit bureau that provides credit reports of individuals. Through this individual credit report, lenders will be able to pre-assess the borrower’s credit health and verify his overall financial standing before approving a loan. It is a record of an individual’s credit history, and this includes detailed monthly loan repayment behaviour, information about credit accounts, outstanding balances and even publicly displayed records such as litigation case and bankruptcy status. Such powerful information is crucial and may affect one’s life, which is why having a good credit report is highly treasured.
Steps to rebuild credit reputation after a bad debt
1. Wean off on paying on credit terms
The initial action towards breaking free from the debt cycle involves minimizing dependence on credit facilities for expenses. It's recommended that individuals initially transition to using debit cards for daily expenditures instead of immediately resorting to credit cards. This approach aids in curbing overspending tendencies and encourages a continual, conscious effort to spend within one's means.
2. Spend within own limit
The crucial initial action in restoring one's credit score is to avoid relapsing into debt, emphasizing the importance of spending within one's means. It is recommended that individuals establish a budget and prioritize expenses, distinguishing between necessities and desires. Being realistic rather than overly ambitious in material desires is essential, such as opting for public transportation instead of owning a car.
3. Maintain consistent good repayment records
Maintaining a positive track record of credit repayments is pivotal for steadily enhancing one's credit score. For those with an active unsecured credit card, beginning with small, timely, and complete payments is advisable. Alternatively, individuals without an unsecured credit card can explore obtaining a Secured Credit Card, however this will usually require the individual to pledge a fixed deposit account to the credit card.
4. Check your Credit Report
It is highly recommended that individuals periodically review their credit reports to identify any inaccuracies or outdated information. Alternatively, they can choose to subscribe to a personal credit monitoring tool like My Credit Monitor (MCM). MCM offers the convenience of monitoring one's credit report, providing peace of mind no matter where they are. With subscription options of 6 or 12 months, along with complimentary credit reports, subscribers receive timely alerts via SMS or email for predetermined activities on their credit report. This ensures they are promptly informed of any new information added to their credit report.
Lastly, where can I get a copy of my credit report?
To check your credit score, you can purchase a copy of your credit report at https://www.creditbureau.com.sg/.
Last but not least, be sure to follow and like CBS’ Facebook page @creditbureausingapore for more useful content and tips to build a good credit reputation!
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