Everything You Need To Know About Your Credit Score

Getting the most out of the financial system requires understanding the concept of a credit score. Yet, it’s not something we usually think about. In fact, most Malaysians are unaware that there is a national credit rating system.

That in mind, we will be providing an overview of the definition of a credit score and how you can take control of it.

What is a credit score?

A credit score is a three-digit number that gives you a snapshot of your credit health. It evaluates your financial history to see if you are credit-worthy. It is a good indication of whether financial institutions will be approving your credit product applications. Just like how you need a resume when applying for a job, you also need a full financial health check-up before applying for loans.

Having a good credit score will open up more financing options for you as more banks won’t be afraid to deal with you. On top of that, they might also offer you a better rate for credit products such as home, car and personal loan. A less than satisfactory credit score may discourage banks from giving you a loan.

How is your credit score calculated?

Your credit score is a weighted calculation, with five factors contributing to the final overall number.

40%	Payment history Whether you pay your loans on time or have missed payments over the last 12 months.
30%	Credit Mix and Loan Amounts Owed Types of loans and credit cards you hold - secured (home, car loans) vs unsecured credit (credit cards, personal loans), and the amount owed to the banks.
10%	Length of Credit History How long have you held a credit facility (credit card or loan).
10%	New Credit applications Your approval record for new credit facilities (credit card or loan) in the past 12 months.
10%	Legal Track Record Legal action taken or claims against you as a defendant

What are the factors that will affect your credit rating?

Each credit rating agency has its own methods of calculating a credit score, and so do financial institutions. These are all based on available information, and not every organisation will have access to the same data.
The calculations themselves are kept secret from the public. Meaning that we cannot precisely say what goes into a credit score. However, we do have a general idea of what factors will influence the final outcome.

1. Payment history

Your payment history takes into account whether you’ve been paying off your debts like credit cards, loans, and mortgages. In this case, a single missed payment probably won’t hurt you all that much; several missed payments will almost certainly send your credit score crashing down.

Neglecting your loan payments can have dire consequences on your finances. Defaulting on your loan results in bankruptcy, which is the worst-case scenario for your credit health.

2. High debt-service ratio (DSR)

This category involves the amount of debt you have in relation to your income. Essentially, it compares your monthly commitments (from loans, credit cards, etc) against your salary.

A high ratio could be a warning that you are taking on more debt that you can manage, and may result in banks declining your loan application.

3. Too many credit applications

Every time you apply for a credit product, the financial institutions will pull your credit report. This will inquiry will be noted by the credit rating agencies and can be seen by other financial institutions.

Applying for too many loans and credit cards within a short amount of time will affect your score negatively as banks get suspicious of people who try to take on too much debt too quickly.

4. Lack of credit history

Maybe your credit history is extremely short, leaving very little trace of how you’ve been doing financially. An empty history generally means that you haven’t been taking loans or have never owned a credit card.

This may happen to younger people who haven’t had time to build a line of credit, but it can also happen to older individuals who have been avoiding financial institutions for whatever reason.

5. Court cases

You could be one of those unlucky individuals that are facing or have faced legal action; regardless of who is at fault. Potentially being subject to a fine, pay damages, or worse will drag your credit score down.

How can your credit score affect you?

We cannot stress how important it is for you to know your credit score before applying for financial products. It will give you an idea of what to expect when dealing with financial institutions, and there could also be further reaching effects.

1. You may be declined for credit cards

Credit cards can help you save money – if used correctly – and earn you plenty of rewards. From movies and groceries to dining and travelling — credit cards can come in handy.

However, a bad credit score may make it difficult for you to get approved for a credit card. After all, there’s no telling if you’ll actually be able to pay off your bill every month if you have a history of missed payments.

2. You may not be able to finance a car or a house

Just like applying for a credit card, loan applications will be affected by a weak credit score too. Even if your loan gets approved, a low credit score may result in higher interest rates as banks lack the confidence that you will be able to service the loan.

Higher interest rates mean higher monthly instalments, which could have been avoided if you keep a good credit score.

3. It may affect potential job opportunities.

You probably never thought about your credit score when applying for a job – because who does anyway? Potential employers may check on your financial health if you’re applying for a high-level position or a position that involves finances. If it is less than satisfactory, they may decide to offer the job to someone else.

Employers want someone who is consistent and reliable, and your poor credit score may portray you to be otherwise.

Where can I check my credit score?

You can check your credit report with three Credit Reporting Agencies (CRAs) in Malaysia. These CRAs are governed under the Credit Reporting Agencies Act 2010 and registered to the Registrar Office of Credit Reporting Agencies.

You can check your credit report with these CRAs in Malaysia:

Agency	Report
Credit Bureau by Bank Negara Malaysia	Central Credit Reference Information System (CCRIS)
RAM Credit Information (RAMCI)	RAMCI Personal Credit Report
CTOS Data Systems	MyCTOS Score Report

1. Central Credit Reference Information System (CCRIS)

The Credit Bureau manages the Central Credit Reference Information System (CCRIS), which is created and owned by Bank Negara Malaysia (BNM). The CCRIS synthesises credit information about a borrower or potential borrowers into standardised credit reports.

The information is available to financial institutions like banks and the individuals themselves upon request. There are three ways you can obtain your credit report from CCRIS:

BNM’s Customer Service Centre

BNM has CCRIS kiosks located in its offices across Malaysia, as well as at the BNMLINK Kuala Lumpur and in AKPK offices nationwide. All you need to do is show up with your MyKad or passport.

These offices are open Mondays to Fridays from 9am to 5pm; with the exception of the Kuala Terengganu branch that operates from Sunday to Thursday. For more information on where the branches are located, visit BNM’s website.

By email, fax, or post.

If you can’t make the trip to BNM, you request your credit score from CCRIS by correspondence. This can be done by email, fax, or traditional mail. If you are planning on using the postage service, we recommend using registered mail in order to track its progress.

You will need to provide the following in order to make a request in this manner:

• Credit report request form;
• Loan declaration form;
• A clear copy of your MyKad (front and back); and
• Any combination of two of the following documents: water bill, electricity bill, telephone bill, bank account statement, credit card statement, or EPF statement.

As your report will be sent to your nearest financial institution, this process will take up to four weeks. However, the cost is free.

eCCRIS

BNM introduced a free online solution for checking your CCRIS report back in January 2018. However, like other government agencies, it requires you to first register for an online account with BNM. To do this, you will need to:

• Request for your 6-digit eCCRIS PIN and verify your identity at any BNMLINK Kuala Lumpur, BNM Offices or AKPK branch. The PIN will be sent to your registered mobile phone number.
• Perform your first time login at the eCCRIS site using your IC number and PIN.
• Create your user profile with username, password, and three security questions.
• You can now return at any time to view your credit report by logging in and selecting “Check ENQUIRY > Self Enquiry – Individual”

2. Experian (RAM formerly Credit Information)

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Experian entered the Malaysian market with the acquisition of RAM Credit Information Sdn Bhd (RAMCI) in 2019. As such, it is a licensed credit rating agency under the purview of the Ministry of Finance Malaysia.

3. CTOS

Similar to RAMCI, CTOS is registered under the Credit Reporting Agencies Act 2010. It is a Credit Reporting Agency that collates and provides individuals with their credit reports that detail their credit history for the past 24 months, legal proceedings, company ownership and directorship, and even testimonies from companies that they have business dealings with.

To check your CTOS Score, you will need to purchase the MyCTOS Score Report at RM25. This report includes your CTOS Score, CCRIS records, and dishonoured cheques.

How do banks check my credit score?

In general, banks communicate with BNM and other credit rating agencies in order to ascertain your credit score. However, they also have their own customer database from which they use to influence the rating.

The exact specifics of what goes on behind the scenes is a closely guarded secret, and each bank has its own methodology. Banks do not solely rely on your credit score to determine your risk as a customer. There are a number of other unknown factors that are taken into account, even if your bank does not tell you that it is happening.

Basically, it is important to understand that your credit score is not a guaranteed representation of whether you qualify for a particular financial product. It is only an indication of your financial health and how well you handle debt.

What do I do if I have a low credit score?

The first thing to do is not panic or worry. Like all problems, a low credit score can be fixed. What you need to do is find out why you have a low score, and then you’ll be able to follow these easy steps to begin on your path to recovery.

1. Try to cover a few payments that you’ve missed

You’re likely struggling with your finances if you’ve been missing payments, and this advice probably doesn’t sound like it will help. However, your missed payments do the most damage to your credit score. So do your best to make a few of them for at least a couple of months.

Think of it as a short term milestone in your longer plan to financial recovery. Even getting a few payments in will give your credit score the bump needed to implement the next stages in the roadmap to financial stability.

2. Stop applying for credit products (for a while)

If you’ve been desperately applying for personal loans to deal with debt; just take a break. Constant rejection not only tanks your credit score, but also impacts your morale.
Instead, contact your bank if you’re having trouble paying off loans and credit cards. Most institutions will be happy to negotiate new terms or offer you a different repayment scheme.

3. Try debt consolidation

Now that you’ve taken the first steps, it’s time to think about a longer term plan. You’re already struggling to pay off all your debt, so it might be time to start thinking about consolidating some of that debt. It’ll reduce your monthly payments and give you more flexibility to deal with your situation.

Debt consolidation doesn’t necessarily have to come from a personal loan. Some credit cards also offer credit transfer options.

4. Financial restructuring

What if your credit score is too low to qualify for a new personal loan or credit card? Maybe the banks decide that you’re too much of a risk. After all, everyone is careful about lending money to strangers.

One way of rescuing your score is by restructuring your debts. Credit card companies and banks will gladly negotiate payment schemes to help you clear what you owe them.

If you’re unable to reach out to a bank at the moment, or you have multiple loans and credit cards, then you can also turn to credit counselling agencies like AKPK. They offer detailed advice on how to deal with your financial situation, and will be able to give you a personalised plan on how to go about tackling your problems.

Your credit score is updated every three to six months, so it’s important that you check on your progress. If you can start raising your score to the next threshold, you can begin the next step in your financial rehabilitation.

How do I improve my credit score?

If your credit score is not terrible, but you just need a little boost to get better financial products, or just bragging rights, here are some steps you can take.

1. Credit card balance transfer

If you’re just stuck paying off the interest on your credit card each month to avoid incurring penalties, you will probably benefit from a credit card balance transfer programme. This allows you to transfer the amount you owe from Credit Card A to Credit Card B with lower interest rates. This helps you pay off the amount owed, as you’re no longer just stuck on interest payments.

In fact, many balance transfer credit cards also offer zero interest rates for a limited amount of time. This is to help you pay off that debt and get back on your feet. Do not take it as an opportunity to slack and spend that money on something else.

2. Debt consolidation

Personal loan can be a good booster for your credit score, especially if you use it for debt consolidation of revolving credit.

Credit card debt is one example of a revolving credit – basically it means your balance will snowball every month at a fixed interest rate. By gathering all your outstanding debts into one loan that will cost you less in monthly repayments compared to what you were dealing with before, you essentially lower your credit limit and debt-service ratio (DSR).

It also helps your overall credit score by clearing several debts at a time. This also helps reduce any score penalties that may have occurred due to missed payments.

3. Auto-bill payment

Automating your payments could be a useful financial move if you have a habit of using money set aside for bills to buy other things on impulse.

Most banks offer an automatic bill payment system that transfers the appropriate amount from your savings at a set time each month. This financial move ensures that you never miss a payment and does not allow you the opportunity to spend that money on something else.

It’s difficult to say how much a missed bill payment actually impacts your credit score. Each financial institution weighs it differently and doesn’t reveal the calculation. However, it is only good financial practice to pay your bills on time and getting on top of your bills will also help improve your score.