Can Your Credit Report Affect Your Loan?

The importance of maintaining a healthy credit score often eludes young professionals who have just joined the workforce – important they will come to realise the hard way when their application for a personal, car or home loan is rejected.

For those who have been rejected by financial institutions when applying for a loan, the reason is most likely a poor credit rating or score. 

Understanding credit report

In Malaysia, Bank Negara Malaysia (BNM) maintains a computerised database of credit reports which contains credit scores. This database system is known as the Central Credit Reference Information System (CCRIS).

According to BNM, at present, the database system contains credit information on about nine million borrowers in Malaysia. CCRIS receives credit dates from various financial institutions and generates individual credit reports, which are made available to financial institutions, individuals, and even companies upon request.

A credit report contains the following credit information of an individual:

1. Outstanding credit(s) – excluding any accounts which have been fully settled.
2. Special attention account(s) – Non-performing loans, loans that are in default or close to being in default.
3. Application(s) for credit – Applications approved in the previous 12 months, excluding application that has been rejected, deleted, or cancelled.

How does a credit report affect loan application?

Financial institutions refer to your credit report to determine your repayment capabilities before approving a loan application. However, in order for the lender or bank to access your credit report, it first has to inform you in writing that a credit check is to be conducted.

Once the application has been approved, the bank will send information to the Credit Bureau which details, in the form of a credit report, how well you handled your debt. Reference to the credit report will be made by the financial institutions periodically to obtain updates on an existing borrower.

If you are doubtful of the credibility of credit reports, the information contained in these reports is entirely factual and historical. The Credit Bureau will not in any way give recommendations or opinions based on the report to financial institutions.

Different banks have different policies when it comes to loans or credit card approvals. They may place varying importance on the different information detailed in this report. However, it is known that the approval of a loan application will largely depend on the risk evaluation conducted by the bank, based on the information in the borrower’s credit report.

The information stored in CCRIS also includes any new loan applications. Hence, it is safe to say that your banks are fully aware of how many banks you have already approached prior to applying for financial credit from them. This may not affect your credit rating but may send a negative signal to some banks.

Keeping a clean record

With full disclosure of your housing loans, car loans, credit cards, personal loans, as well as other commitments jointly made with friends or family members, it is important to keep a clean record to avoid any obstacles in applying for financial credit in the future.

While each bank assesses your credit score differently, your credit report will provide crucial information that determines whether your application is approved or rejected by the banks. Therefore, it is important to keep your credit rating in mind when you are managing your money and debts.

Here are some simple ways to ensure a clean credit record:

1. Get a job – Having a stable stream of income indicates your ability to service a loan or manage your credit card.

2. Avoid holding too many credit cards and maintain a good payment record – Apart from limiting the number of credit cards you hold, manage the repayment of all outstanding balances on your credit card. You can consider consolidating your credit card debts on one card.

3. Timely payment – Repayment history is a major factor in the lenders’ risk evaluation on a borrower. Do not drag or defer your repayments as it will affect your future loan or credit card applications.

4. Manage your debt – Always borrow according to your capacity. As your credit report encompasses all your active loans, banks are aware of your outstanding borrowings. If you have used up all your borrowing capacity, then your loan will most probably be rejected.

What if you have a bad credit report?

Raising your credit score is not complicated, but it does take time, discipline, and hard work. These steps can help get your credit score up to improve your chances of qualifying for a mortgage:

1. Check your credit report regularly. You are allowed to check your credit report every three months. Correct any errors on your report, especially late payments that are not recorded properly. Here’s how you can obtain your personal credit report.

2. Make all your payments on time. Late payments are the first thing that lowers your credit score.

3. Pay down revolving debt like credit cards. A high debt-to-credit ratio is another sure-fire way to lower your score.

4. Wait it out. As your credit report only records active loan accounts for the past 12 months, you just have to wait it out. As long as you’re paying down debt and making payments on time, your credit score will eventually rise on its own.

The above is generally good financial habits to inculcate from the beginning. However, if you have a bad record now, it is not the end of the world. While your credit rating can make or break your life (for the moment), it isn’t something to fear.

When you understand how to manage your credit responsibly, you will eventually build up a solid credit report and save yourself a lot of trouble, and sometimes even money from lower interest rates offered by banks.

Source:https://www.imoney.my/articles/can-credit-report-affect-loan

Here’s Why Applying for a Credit Card Hurts Your Credit Score

Credit Score

If you’ve ever checked your credit score before and after applying for a loan or credit card, you may have noticed it dropped a little bit. Yes, applying for credit hurts your credit score, but it’s usually a small hit, and it won’t drag you down for long.

This is because applying for new credit results in a hard inquiry on your credit report, and credit scores view hard inquiries as a slightly negative bit of credit history. Hard inquiries are pretty straightforward, but understanding why they’re bad takes some explaining. First, you need to understand the difference between a soft inquiry and a hard inquiry.

What Are Inquiries?

Whenever someone looks at your credit report, it’s noted in your credit history. There are many reasons to pull a credit report: You do it to make sure everything in your history is accurate, monitor for signs of fraud, and understand how a potential creditor may view you; lenders look at consumer credit reports when deciding to whom they should send offers; an employer may check your credit history as a part of the job-offer process — there are a variety of situations in which someone may want to review your credit history for something other than granting you a loan, and those informational requests are called soft inquiries. Soft inquiries have no effect on your credit scores.

It’s when you’re asking someone to take a risk and extend you credit that an inquiry has a negative impact on your credit standing.

Why Is Applying for Credit Bad for Scores?

This isn’t to say you should never apply for new credit, but it’s definitely something to do sparingly and cautiously. Applying for a new credit card is only going to shave off a handful of points from your credit scores, and that effect only lasts for about a year (inquiries stay on credit reports for two years, but most scoring models ignore inquiries older than a year). In addition to the damage being only temporary, the benefit of the new credit (if you receive it) will likely outweigh the few points you lost to the inquiry because of things like account mix and available credit relative to your debt matter more than inquiries.

Don’t underestimate those hard inquiries, though. If you apply for a lot of new credit in a short time frame, those little dings in your credit score will add up. Think of it from the lender’s perspective: Someone who is suddenly shopping around for a lot of credit may be doing so to cover a shortage in cash. That could indicate potential trouble repaying debts, which makes the consumer credit risk. The drop in credit score resulting from many hard inquiries reflects that risk.

There are some exceptions to the “apply sparingly” rule: When searching for a mortgage, auto loan, or student loan, most credit scoring models allow you at least a two-week period to apply for multiple loans of the same kind, so you can find the best deal. For example, if you’re shopping for the best mortgage pricing, any mortgage inquiries made within two weeks will count as a single hard inquiry — this encourages consumers to seek the most affordable deal, without having to worry about harming their credit standing.

In many cases, credit score shifts of a few points won’t matter much, but with large loans like mortgages or auto loans, small score changes could cost you thousands of dollars over the life of the loan. That’s why it’s important to apply for credit only when you need it, abstain from getting new credit in the months leading up to submitting a home- or auto-loan application and regularly monitor your credit scores and reports to make sure errors don’t adversely affect your chances at securing affordable financing. You can get a free credit report summary every 30 days on Credit.com to help you stay organized and informed.

Get your Credit Score at Credit Bureau Malaysia

Apart from CTOS and CCRIS database, you can obtain a copy of your credit report from Credit Bureau Malaysia. In fact, this is the only place to obtain your Credit Grade, Credit Score, and Probability of Default.

To obtain your copy of the individual credit report, you go to their website at https://www.creditbureau.com.my/  and then you click Self Enquiry Report followed by Individual Report;  you will see a Self Enquiry Checklist in three pages. Complete the form and sign on the second and third copy and then you email or fax the completed forms with the required documents. Before sending the documents remember to transfer RM2 to their account 512352604549 at MBB. You will receive your report on the same day by email.   

  

 I have got a credit score of 575 out of 900 and my credit grade is CC. The probability of my defaulting based on statistics and the population average, within the next 12 months is 4.54%. You can see the MySCoRE Assessment here:

According to Credit Bureau Malaysia, to maintain a healthy credit you should:   

1.     Always pay your bills on time

·         Even if it is the minimum payment

·         Late payments will affect negatively in your credit report
(eg: interest charges/outstanding amount may accumulate higher than the limit of credit)

2.     Keep the balance of your accounts/credit cards at least 35% of your total credit limit. (eg; Credit Card limit RM 4000, balance maintain at RM1400)

3.     Try to obtain a mixed form of credit. (eg; Housing, Hire Purchase, Credit Card)

·         A credit card is a very risky term of credit, hence obtaining a mixed credit term allows the lender to gauge you better.

4.     Don't apply for too much credit at once

·         The rule of thumb of 'everything in moderation' also applies to credit applications

·         Note that obtaining a lot of credit will, in turn, deem you as a risky customer/paymaster.

·         Note that the limit of the Credit Card is taken into account, not the outstanding for evaluation by the credit grantor

5.     Keep track of your credit report for at least 2 years

·         Regular checks help ensure that your credit information is intact /accurate.

Credit Report

Your credit report contains your credit history and your personal information. Your credit record includes your credit accounts, loans, bankruptcies, and late payments. Upon receiving an application for a loan or credit from you, financial institutions can obtain your credit report to assess your credit-worthiness before approving your application. It is very important that your credit report is updated before making credit applications.

In Malaysia, you can obtain your credit report from the Credit Bureau of Bank Negara Malaysia. It is housed in a computerized database system known as the Central Credit Reference Information System (CCRIS).

In the past, the Credit Bureau of Bank Negara Malaysia was empowered to disclose credit information only to financial institutions. With effect from March 2002, an individual can request for his own credit record. However, you can only apply for a credit report once every 12 months. It is free of charge.

When you wish to ask for your credit report you can go to

http://www.creditbureau.bnm.gov.my and download Form CBS 01 (Credit Report Request Form) from Bank Negara Malaysia or Central Bank of Malaysia.

If you dispute the information reported by the financial institutions in your credit report you can fill up another form, Request for Data Review. The Credit Bureau will investigate and notify the financial institution that had provided the disputed information together with all relevant data. The investigation and remedial process will normally take about a month to be completed. You will be notified of the outcome of the investigation. In the event that the disputed information is confirmed accurate, you are advised to refer the matter to the respective financial institution.