Despite getting a pay rise six months ago, Ahmad’s loan application was rejected. The bank told him it was due to his poor credit score. To understand more, he went down to CTOS to figure out why he had a poor credit score.
But what actually is a credit score and how is someone scored? 

What is a credit score?
A credit score is basically a rating of how likely you are to repay your loan. It ranges from a poor credit score to a good credit score. Banks use a credit to score to help determine if they should give you a loan. The higher your credit score, the higher your chances of getting your loan or credit applications approved. You can get your credit score from your credit report. 

What is a credit report?
A credit report shows how you have been managing your finances. In a credit report, you’ll be able to see your credit score along with your personal details, banking payment history (including credit cards), legal cases and more. Using this information, the banks will be able to get a clear idea of your spending and payment habits.

Where can you get a credit report?
You can get a free basic credit report from any Bank Negara Malaysia (BNM) branch or online (CCRIS). Some credit reporting agencies like CTOS do provide free basic credit reports. You could also pay for a full comprehensive report from these credit reporting agencies. 

How is your credit score determined?
There are five factors that make up your credit score.

1. Payment history – If you pay your loans on time or have missed any payments
2. Amounts owed – The number of loans you have and the the amount you owe to the banks. 
3. Credit history length – How long you have had a loan from a bank or even a credit card.
4. Credit mix – Types of loans or credit cards you have.
5. New credit – If you have recently been approved for loans.

Bank Negara or the reporting agencies do not determine how you get your score. These credit reporting agencies are neutral and calculate your credit score purely from your financial history.

 How do I maintain a good credit score?

1. Good credit history: One option that people use is to get a credit card. By using your credit card and paying it off on time, you’ll build a good track record. But make sure you pay it off! Missed credit card payments will affect your credit score.
2. Pay your bills on time: Make sure you have paid all your bills before the due date.
3. Pay off as much as you are able to: Even if you can’t make the full payment, pay off as much as you can. This way, you can recover from the debt in a shorter period. 
4. Only take on new loans if you really really have to and are sure you can pay back.
5. Use less of your credit limit: Just because you have a credit limit doesn’t mean you should use all of it. Banks usually do not give out loans if your total monthly debt repayments are over 60% of your monthly income.

So, do you need to have a good credit score?
You need to have a good credit score to be able to take loans and possibly get them at better interest rates. That being said, having a bad credit score does not mean you’ll never be able to get a loan. It could mean the loans you get are more expensive. Learn more on how to improve your credit score by reading our Guides.