This may seem unbelievable, but building a good credit history is as important as achieving good academic results for fresh graduates.
While academic results help you to land a good job or enter an elite graduate school, a good credit history influences your advantages of getting your dream job and applying for credit to finance the big-ticket items in life.
The Impact of a Bad Credit Reputation
A good credit reputation is a strong indicator of a person’s financial soundness, competence and capability; this is why your credit score may play a role in the approvals or rejections of your credit applications with banks. The better your credit score, the greater your chances of obtaining better loan terms—such as higher mortgage loan amounts or lower interest rates.
A below-average credit score grade can affect your future job prospects too, as companies are increasingly conducting employment checks on prospective hires. They are generally more inclined to hire those who come across as responsible, and your credit report is a clear reflection of whether you have been disciplined and diligent with repayment. A low credit score may be correlated with irresponsibility and bad financial management, which poses as a red flag to future hirers.
Another important consideration for recruiters is the possibility for the potential new hires to misappropriate funds. Without a doubt, there have been many such incidents being reported in recent years. One recent example took place in Singapore in July 2019: an accountant embezzled a sum of approximately S$41 million due to his gambling habits. It affected 21 companies, and S$24 million has yet to be recovered. As illegal activities can take place at any level, not excluding those who are of upper management levels, some companies diligently conduct thorough annual credit checks for all employees to prevent such unfortunate happenings.
Fit-and-Proper Guidelines by MAS
Companies may also want to avoid legal liability for negligent hiring.
This is especially relevant for banks and Financial Institutions as they are closely regulated by the Monetary Authority of Singapore (MAS). As part of the Fit-and-Proper guidelines by MAS, they are obligated to do employment checks which include credit checks on pre-hires.
Under MAS’s Guidelines on Fit and Proper Criteria, it is stated that be it an institution, exempt financial institution, exempt entity or a fund management company, they must satisfy MAS that “it has in place appropriate recruitment policies, adequate internal control systems and procedures that would reasonably ensure that the persons it employs, authorises or appoints to act on its behalf, in relation to its conduct of the activity regulated under the relevant legislation, meet the relevant fit and proper criteria of these Guidelines”.
Start Building Your Credit Score Early
A bad credit reputation usually arises when consumers fail to repay their debts on time, causing their credit scores to drop significantly. To avoid this:
• Pay your bills on time and in full
If possible, always pay in full as any outstanding balances will typically be charged interest at 24% p.a. You may consider repayments via GIRO to ensure payments are not late.
NOTE: Payment default records stay on your credit report for 3 years while bankruptcy data is retained for 5 years even after full settlement.
- Limit the number of credit cards you own
Cancel any unused cards—it is far more manageable to keep track of two credit cards than five. Don’t apply for a few credit facilities in a short span of time, either—this sends an indication to creditors that you are desperate for credit and are a risky borrower.
- Pay down your debts and consider charging less
Lenders prefer to see more breathing room between the amount of debt reported on your credit cards and your total credit limit. The more debt you pay off, the wider that gap and the better your credit score.
Obtaining Your Personal Credit Report
It is crucial to understand your own credit report as lenders such as banks and financial institutions will use it to assess your credit worthiness before making any lending decision. This will also be the same report which employers will receive during background checks. Here’s a sample credit report so that you’ll know how one looks like!
Credit Bureau Singapore’s credit reports can be obtained through the following channels:
- Online via Singpass through the Credit Bureau Singapore website
- In person at the Credit Bureau Singapore office at 2 Shenton Way, #20-02 SGX Centre 1, Singapore 068804
- At any SingPost branch
In a nutshell, having good credit habits and prudent behaviour far outweighs the negative consequences of having to build or resolve a bad credit rating. Always remember to only spend within your means, track your monthly expenses regularly and apply for loans with the careful consideration that you will be able to repay your debts on time and in full.
This article was contributed by Credit Bureau Singapore. Do like Credit Bureau Singapore’s Facebook page to know more about credit reports, personal finance and how to maintain a good credit reputation!