Credit scores are important for financial institutions and licensed moneylenders in Singapore to make key financial decisions. For instance, checking the borrower’s credit score when issuing credit cards of fast cash loans in Singapore.
With credit scores, licensed moneylenders can gauge your history of paying your debts or loans, such as how often you pay them your debts on time, as well as if there have been any incidents of defaulting in your credit history. Credit scores are important as they determine an individual’s trustworthiness with their finances.
Here’s what you need to know about the importance of credit scores for licensed moneylenders and as a borrower.
Importance of credit scores for licensed moneylenders
1. Better investment decisions
Financial institutions and licensed moneylenders look to avoid risky customers as much as possible when it comes to offering loans. When going through the credit history of an individual, they will be able to understand more about their creditworthiness.
By evaluating the customers’ credit score, they can make better decisions on the type of investments that they can make.
2. Safety assurance
When a borrower has a high credit score, it shows assurance and safety for licensed moneylenders and financial institutions. With low credit scores, licensed moneylenders will find the borrower to be at risk of defaulting on their loan payments.
Credit assurance plays a vital role in helping licensed moneylenders and financial institutions to evaluate the interest rates of loans.
Importance of credit scores for borrowers
Easy loan approval
Licensed moneylenders view borrowers with high credit scores as a low-risk customer. Thus, licensed moneylenders will approve loans for borrowers with high credit scores. Credit scores are one of the significant factors of consideration for licensed moneylenders in offering a loan.
On the other hand, borrowers with low credit scores will find it challenging to obtain a loan such as a consolidation loan. While it is possible to get a loan, they may have to opt for high interest rate loans. Otherwise, there’s also the option of looking for licensed moneylenders who require additional security, such as a collateral, if they do not consider your credit score before issuing a loan.
However, both high interest rates and collaterals can be financially risky for you – so it’s best to get a good credit score from the very beginning.
Issuing the appropriate interest rate
Financial institutions and licensed moneylenders in Singapore rely on several factors when determining interest rates. One of these significant factors is credit scores. The higher your credit score is, the lower the interest rate will be. The lower your credit score is, the higher the interest rate will be.
The main reason higher interest rates are charged to borrowers with lower credit scores is the risk that is involved. This is because borrowers with low credit scores might default or fail to repay their loan much more often than those with high credit scores.
Conclusion
Generally, your credit score defines how you have been able to deal with your debts and loans in the past. Many borrowers may not realise the impact of defaulting on their mortgages, rent, utility providers and even employers until they apply for a loan.
Thus, by taking your debts and finances seriously, you can ensure that your credit score remains high.