Establishing and improving your credit score is essential for financial health and securing favourable terms when applying for credit cards or loans in Malaysia. A strong score not only opens doors to better financial products but also reflects your ability to manage credit responsibly. In this article, we will break down the key factors that influence your score and provide actionable tips on how to quickly improve your credit score.
Understanding the Main Factors That Affect Your Credit Score
To effectively improve your credit score, it’s important to understand how it is calculated. In Malaysia, your score is assessed by credit reporting agencies such as CTOS and Experian, using data from the Central Credit Reference Information System (CCRIS) managed by Bank Negara Malaysia. While different agencies may calculate scores slightly differently, the main factors affecting your score remain the same.
Payment History and Its Impact on Your Score
Your payment history is the most important factor. It shows lenders whether you pay your bills, loans, and credit card balances on time. Any late payments, defaults, or bankruptcies will negatively affect your score. The more consistent you are with making on-time payments, the higher your score will be.
Example: If you always pay your credit card bill on time every month, this will positively contribute to your score. On the other hand, even a single late payment can significantly lower your score.
Credit Utilisation: How Much of Your Credit Limit You Use
Credit utilisation refers to the percentage of available credit you are using. Lenders prefer to see that you are using only a small portion of your available credit, as it shows responsible financial management. A general rule is to keep your credit utilisation ratio below 30% of your total credit limit across all accounts and credit cards.
Tip: If you have a credit card with a limit of RM10,000, try to avoid carrying a balance higher than RM3,000. This simple action can help maintain a higher score.
Length of Your Credit History: Why It Matters
The length of your credit history contributes to your score by showing how long you have been managing credit. Lenders tend to favour borrowers with a longer track record of responsible credit use. If you have had an open credit account for a long time, it shows consistent debt management over the years, which boosts your score.
Example: If you have had a credit card for five years and have always paid on time, this will positively impact your score—even if you rarely use it.
Effective Ways to Improve Your Score in the Short Term
While improving your credit score can take time, there are quick actions you can take to see positive results in a relatively short period.
Paying Off Outstanding Debts and Overdue Accounts
If you have outstanding debts or unpaid accounts, settling them is one of the most effective ways to improve your score. While late payments may remain on your credit report for some time, paying off overdue accounts shows lenders you have taken responsibility for your financial obligations.
Tip: Start by paying off debts with the highest interest rates to save on future payments. This will not only improve your score but also reduce your financial burden.
Keeping Your Credit Utilisation Below 30%
One of the fastest ways to boost your score is to lower your credit utilisation ratio. As mentioned earlier, keeping your credit usage below 30% of your total available limit signals to lenders that you are managing your finances well.
Actionable Step: If you have high balances on multiple credit cards, pay them down and avoid maxing out your cards. This will immediately reduce your credit utilisation and improve your score.
How to Build Credit from Scratch
For those new to credit or with a limited credit history, building a strong score from scratch can be challenging, but it is achievable with the right approach.
Applying for a Secured Credit Card or Entry-Level Credit Card
If you have no credit history, consider applying for a secured credit card. These require a cash deposit as collateral, which reduces the bank’s risk. A secured card allows you to build a positive payment history, gradually increasing your score.
Tip: Many banks offer entry-level credit cards with low income requirements, making them ideal for beginners looking to establish credit.
Taking Small Loans and Repaying Diligently
Another way to build credit is by taking a small loan, such as a personal loan or hire purchase for items like a motorcycle or furniture. The key is to make payments on time, which will create a positive payment history and strengthen your credit profile.
Example: If you have a student loan, ensure you make consistent payments. Even small amounts add up over time and positively affect your score.
Applying for a Secured or Entry-Level Credit Card
If you are just starting to build credit or have a lower income, consider applying for a secured credit card or an entry-level credit card. These cards are designed for individuals with limited or no credit history and typically have lower income requirements. A secured card requires you to make a deposit that becomes your credit limit, making it a low-risk option for both you and the lender.
Tip: Always pay your balance in full each month to avoid high interest charges, and make all payments on time to build a strong credit history.
The Importance of Regularly Checking Your Credit Report
Checking your credit report regularly is important for maintaining financial health. It allows you to monitor your score and identify any inaccuracies, such as errors or signs of fraud, that could harm your score.
In Malaysia, you can check your credit report for free via the Bank Negara Malaysia eCCRIS portal or by contacting agencies such as CTOS and Experian. Staying informed ensures you can take immediate action if any issues are affecting your score.
Action Tip: Set reminders to check your credit report every few months. This will help you stay proactive about your credit health.
Common Mistakes That Can Damage Your Score
Improving your score requires consistent effort, but certain mistakes can quickly undo your progress. Avoid the following:
Applying for Too Many Credit Cards in a Short Period
Each time you apply for a new credit card or loan, lenders conduct a “hard inquiry” on your credit report. While one or two hard inquiries won’t have a major impact, too many within a short period can signal financial instability and harm your score.
Tip: Only apply for credit when necessary, and space out applications over several months to avoid damaging your score.
Missed Payments
Even a single missed payment can significantly lower your credit score. Set reminders or automate payments to ensure you never miss a due date. The more on-time payments you make, the better your score will be.
Using Instant Loans Wisely
Instant loans may seem like a quick fix for financial needs, but they can sometimes carry high interest rates and may harm your score if not handled responsibly. Before taking an instant loan, make sure you have a clear repayment plan and that the loan fits your budget. Applying for too many loans in a short time can also cause hard inquiries, which can lower your score.
Improving your credit score may take time, but with the right strategies, you can make significant progress. Whether you’re starting from scratch or aiming to raise your score, consistently applying these tips will help you achieve better financial opportunities in Malaysia. Stay proactive about your credit health, and before long, you’ll enjoy the benefits of a high credit score.
FAQ
How is my credit score calculated in Malaysia?
Your credit score in Malaysia is calculated based on factors such as payment history, credit utilisation, and the length of your credit history. It is assessed by credit reporting agencies such as CTOS and Experian, using data from the Central Credit Reference Information System (CCRIS) managed by Bank Negara Malaysia.
What is the most important factor affecting my credit score?
The most important factor is your payment history. Timely payments on loans, credit cards, and bills will positively impact your score, while late payments, defaults, or bankruptcies will lower it.
How can I improve my credit score quickly?
To quickly improve your score, pay off outstanding debts and keep your credit utilisation ratio below 30%. Additionally, settling overdue accounts and reducing high credit card balances can have an immediate positive effect.
How can I avoid damaging my credit score?
Avoid applying for multiple credit cards in a short period, missing payments, and overusing your credit limit. Ensure you have a clear repayment plan for any loans or credit balances.