Credit Scoring

Did you know that only 40% of Malaysians are creditworthy or should be allowed to get a loan? One reason for this is the lack of awareness amongst Malaysians about building and maintaining a good credit profile.

When you apply for a bank loan, the bank has to decide whether to approve your loan application or not. Apart from looking at your income and existing loans, your credit score is typically what banks use to decide whether to give you a loan.
 

Summary

You can find your credit score in a document called a credit report that’s prepared by a credit reporting agency. In Malaysia, there are a few different credit reporting agencies that prepare different types of credit reports. An example of a credit reporting agency is CTOS.

These reports contain different types of information about your credit history that banks will look at to figure out if you are a good person to lend to.

Read on to learn more about credit scoring, and what you can do to improve your credit score.

DEEP, DEEP DIVE

What is credit scoring

What is credit scoring?

Credit scoring is simply the process of giving someone a score that reflects their creditworthiness – that is, how likely you are to make repayments on your loan or credit on time. The higher your credit score, the higher your chances of getting your loan or credit applications approved. A score in the higher range can also get you lower interest rates.

What is a credit report?

A credit report is like a report card of how you manage your finances. It is a neutral document that contains information about both your good and bad financial habits. A credit report will list information such as your credit score, identity verification details, directorship and business interests, address records, banking payment history (CCRIS summary and details), dishonoured cheques, legal cases and more.

You’ll be able to see what loans and credit facilities you have plus how much is outstanding for each one, and any missed payments. As such, a credit report is extremely useful for monitoring your credit health. This way, you’ll be able to see quickly what needs to be improved or what you may be doing wrong.

It could also determine if you may be a victim of identity theft. For instance, you may notice credit applications you didn’t make or information that’s incorrect. These could be warning signs that your personal information may have gotten into the wrong hands and that further investigation is needed.

Who produces these reports, and where do they get my information from?

CCRIS (Central Credit Reference Information System) was created by BNM and it collects credit information about individuals, then puts that information into credit reports. Credit reporting agencies such as CTOS then produce credit reports based on CCRIS information.Financial institutions like banks, insurance companies, credit card issuers, leasing companies and even PTPTN submit credit-related data to CCRIS. CCRIS stores this data and produces credit reports. Credit reporting agencies can access this CCRIS information (with consent from consumers who request to purchase credit reports) to produce their own credit reports and score.

Some credit reporting agencies also collect information from other public sources including: National Registration Department (NRD), Registrar of Societies, publications of legal proceedings and notices in newspapers and government gazettes, Companies Commission of Malaysia (CCM), Malaysia Insolvency Department and also Trade References, which contain information about past payment experience(s) between a business and a customer (e.g. your mobile phone subscription).

You can find a complete list of financial institutions that submit credit data to CCRIS here:

http://creditbureau.bnm.gov.my/CIfinancial.html

What types of credit reports are there?

Different credit reporting agencies may produce credit reports with different types of information in them. Generally, here are a few different types of credit reports you can get:

• You can get a basic credit report at Bank Negara Malaysia (BNM) branches or online via eCCRIS for free. It will list all outstanding loans related to your name, whether any of these loans are under close supervision of the related financial institutions (called ‘Special Interest Accounts’) and any loan applications you have made in the past 12 months.
   
• Some credit rating agencies also provide free basic credit reports that contain information such as identity verification details, directorship and business interests, dishonoured cheques, trade referee listings and litigation information. You can get a free report from a credit report agency like CTOS here.
• Alternatively you could pay for a full, comprehensive credit report that contains detailed information from, both, points 1 & 2. On top of this, they may also give you a ‘credit score’ that reflects your creditworthiness.
   

What determines my credit score?

Your credit score is determined by various factors, such as your payment history, amounts owed, length of credit history, credit mix and new credit.

Simply put, good and responsible financial behaviour such as meeting your monthly loan repayments and paying your bills on time will give you a better score.

Do note, different credit reporting agencies have different methods of calculating your credit score. As an example, here is a breakdown of how CTOS calculates your credit score:

Source: CTOS

You can find more information on these 5 factors here.

PRACTICAL TIPS

How do I improve my credit score?

Here are a few ways:

• Have a credit history : You may consider getting a credit card so you can show a history of prompt repayments and low utilisation rates. Even if you only use RM30 a month, it helps build a track record.
• Pay all your bills and repayments on time, or in advance: This includes postpaid mobile subscriptions. For example, if you have more than RM150 outstanding with your phone company for more than 6 months, they may create a “trade reference” that shows what you owe.
• Pay-off as much as you are able to: Pay what you can if you are really unable to settle the full outstanding amount. Then, reduce your expenses so you can pay more the next month.
• Only apply for new credit cards or loans if you really need them: Getting a credit card with a low credit limit would prevent your spending from getting out of control.
• Use less of your credit limit: The higher your outstanding credit relative to your credit limit, the lower your credit score will be. In general, if your total monthly debt repayments are over 60% of your monthly income, future loan applications may be difficult

What should I avoid when trying to improve my credit score?

• Missing a payment: Regularly missing payments may lower your credit score.
• Applying for too many credit cards or loans at once: This may indicate that you are just shopping around, but it can also indicate that you are desperate for funds or taking on too much debt.
• Co-signing a loan: If the person you have co-signed the loan with defaults on their repayments, your credit score could be affected.
• Using up your credit limits: If your credit limit is RM10,000, it’s a good idea not to exceed RM3,000 in usage. This keeps your credit utilisation ratio at a healthy level.

How do I understand my credit report?

In general, here are the sections from a credit report that you need to know about:

• Outstanding credit: Lists your credit card balances, loan balances and other unpaid credit amounts by month. Under each month, a number shows how long you’ve had payments overdue. For example, if there’s a ‘2’ under June, it means you’ve missed your payments for April and May.
  This section will also show your credit limit.Up to 24 months after settling an outstanding debt, the outstanding debt information will be automatically removed from your credit report.
• Special attention account: Lists financial providers that are keeping a close eye on your account because they plan to recover missed payments, or because your debt has been restructured.
• Application for credit: Shows credit that you’ve applied for in the past 12 months, and whether it was accepted or rejected.
• Business interests and directorships: Lists if you are a director in a company, a guarantor for your company’s loans, or own part of a company that has outstanding debt.
• Trade reference: Shows amounts you owe to providers (e.g., internet provider). For example, if you haven’t paid RM150 of your postpaid mobile subscription for more than 6 months, a trade reference may show up on your report.
• Dishonoured cheques: Shows any cheques you issued that were rejected. You should be able to insert comments to explain the reason: E.g. the account was closed.
• Legal cases: Lists any legal cases you have, either brought by you or against you.

Here is a sample CTOS credit report’s summary page.

Click here to download the PDF

Source: ctoscredit.com.my

Click here for the full sample credit report.

Still need more information? Check out the website of the relevant credit reporting agency (CCRIS , CTOS or other agencies) for more details about the sections in a credit report.

What do I do if the information in my credit report is incorrect?

If there are errors in your credit report, contact the relevant credit reporting agency. They’ll first verify if the information is incorrect, and if it is, will advise you what to do next.

ADDITIONAL INFORMATION

Who can view my credit report?

Financial institutions (e.g. banks) who are assessing your loan/credit application and credit reporting agencies may view your credit report, but only with your consent. They also have to treat the data as confidential.

Only you have access to your credit report. Other individuals, e.g. family members or partners can’t access your report.

Can I request information to be removed from my credit report?

Only information that is incorrect or outdated can be removed from your credit report. If a piece of negative information is factually correct, it cannot be removed.

However, if there are legal uncertainties regarding a piece of information, you can request for its removal. For example, if you were a victim of identity theft and someone fraudulently applied for a loan under your name. You should lodge a police report and submit a copy of the report to the credit reporting agency. The credit agency will then assess whether to remove the information or not.

If I have a bad credit score, does that mean I won’t get approved for a loan?

Not necessarily. The approved loan amount may be lower, or the interest rate offered to you higher. Each financial institution has its own criteria and uses the information in credit reports differently.

Important to know: A common misconception is that credit reporting agencies blacklist people or provide negative opinions. But in fact, credit reporting agencies are neutral as they calculate your credit score purely from your financial history, which includes both the good and the bad. Each financial institution can then interpret and use your credit information differently, in line with their company policies.