You have mastered the basics of managing your finances – budgeting, paying bills on time. But did you know a three-digit number – your credit score – can significantly impact your ability to achieve financial goals? This three-digit number is powerful, influencing everything from loan approvals to insurance rates but achieving them requires navigating the often-confusing world of credit.
Despite what many people think, a good credit score is more than just determined by age or past financial behaviour. Here’s a broader picture:
Understanding how credit score works is critical whether you're just starting or looking to optimise your score.
What is a Credit Score?
Think of your credit score as your financial report card. It's a single, powerful number (usually between 300 and 850) that tells banks and credit companies how likely you are to repay the loans granted within the loan term. A high credit score (typically above 700) offers incredible benefits like a good school.
What is a credit score range:
It's a simplified analysis of data that credit agencies use complex algorithms to generate a numerical score. Your credit score typically ranges from 300 – 850. 300 being the lowest and 850 the highest.
Here is a breakdown of the general credit score ranges and their implications.
Source: CTOS
How are credit scores calculated?
Different credit agencies have different formulas to evaluate an individual’s credit score. While the exact formula remains undisclosed, here are the key factors that typically influence your credit score:
Source: CTOS
Credit Reporting Agencies in Malaysia
There are several credit reporting agencies in Malaysia; therefore, before obtaining your credit report, you should check if they are registered under the Registrar Office of Credit Reporting Agencies as they are governed under the Credit Reporting Act 2010.
Difference between CRRIS and Credit Score Reports
Your CCRIS report is a detailed record of your borrowing history, while your credit score is a simplified data analysis. Credit bureaus like CTOS or Experian use a complex algorithm to generate a numerical score that reflects your creditworthiness. A higher score signifies responsible credit management and improves your chances of loan approval.
Both CCRIS and your credit score are important for understanding your financial health and how lenders perceive you. You can access your CCRIS report for free, while there's usually a fee for a credit score report from agencies.
What is a good credit score?
For most banks and credit companies, a good credit score is between 650 and 750. A score between 751 and 850 is considered exceptionally good; if it's below 460, it's considered low. What are the benefits of having a good credit score?
What leads to bad credit?
While poor financial habits can undoubtedly lead to a bad credit score, it is not always the only culprit. Sometimes, even responsible people can find themselves with less than stellar credit due to circumstances beyond their control.
Is having no debt bad for my credit score?
Keeping debt under control is a fantastic financial habit. However, in the world of credit scores, it's not the only factor that matters. Here's a surprising truth: having no credit history at all can work against you. There is no way to assess your ability to manage credit responsibly without a credit score, which can lead to rejected loan applications.
How to build a credit score with no credit history
Having no credit score might feel like a disadvantage, but building a solid credit score is achievable even when starting from scratch. The good news? You don't need massive debt to establish a good credit score. You can work your way slowly by:
How to improve your credit score
Improving your credit score isn't a one-time fix; it's a journey. If you have opened a new bank account or gotten a new credit card, it can take several weeks to appear on your credit report, so it might take a while to see real improvement in your credit score. With consistent effort and the right strategies, you will see a positive difference in your credit score over time.
Conclusion
A good credit score unlocks financial benefits like loan approvals or lower interest rates. Understanding your scores puts you in control of your financial well-being. It takes some effort and responsible financial habits, but the rewards are worth it in the long run. The key to a bright financial future? It’s right in your hands.