Nobody cares about things like credit ratings or the dangers of alcohol poisoning when they're young, hot and foolish. But one day all that YOLO is going to catch up with you and you'll find yourself furiously trying to google up a way to save yourself.
Remember in primary school when the kids who talked too much in class got placed on the teacher's blacklist and forced to sit in the front row?
The Credit Bureau also maintains such a blacklist, and if you're on it it's going to be pretty damn hard for you to get a loan. You get on the blacklist if you default on loans (you know this has happened when you get harrassed by collections agencies). Other unfortunate incidents may include being a guarantor for someone who's run away without paying up.
If you've got such a bad credit rating even the loansharks don't want to lend you money, it's time to take steps to redeem yourself. Before you start rebuilding your life, bear in mind that that banks are going to be paying attention to these three things before granting you a loan:
Your credit score Your income and employment history Your Total Debt Servicing Ratio (TDSR)
Bearing in mind the above, here are some things that can help:
1. Pay off all your existing loans and credit card bills
Every time you fail to pay a loan instalment on time or forget to pay your credit card bills, your credit rating takes a hit. No matter how many tricks you use to try and lower your credit score, if you continue to neglect your existing loans month after month you might as well be trying to fill a bucket with a hole in it.
If you desperately need a housing loan, you should start to beg, borrow, steal or starve yourself in order to pay off your bills months or even over a year before you apply. This not only improves your credit score but also swings the TDSR in your favour, since banks can see that less of your income is tied up in loan repayments.
Now, do note that existing bills you need to take care of also include harmless-looking ones like mobile phone bills, utilities and even library fines. If you're a really delinquent debtor and the companies/authorities get fed up and refer the case to a collections agency, your credit score might be affected.
2. Get a steady job
The ideal customer in the eyes of a bank is a high level executive with an iron ricebowl. Every month, they can count on the fact that he'll be earning x amount. On the other hand, banks more strict with business owners or self-employed people. How strict? Freelancers or self-employed persons have their annual declared income slashed to 70 per cent when applying.
If you don't already have a steady job and your income from business or self-employment isn't all that high, getting employed job and sticking with it for some time can convince the banks that you're a changed man. Unfortunately, convincing a friend's company to "hire" you for a month won't work. You might need up to a year to convince the banks that you're ready, especially if you're waiting for your credit rating to improve.
3. Take a small loan and pay it off promptly
Okay, so you've paid off all your existing loans but your credit score still sucks. This might sound counterintuitive, but it might now be time to take a small loan or two. You see, the banks want to see that you are able to responsibly pay off your loans. So taking out a small loan and then paying it back on time will actually boost your credit score.
But don't go overboard and buy a jetski or something, because if you can't handle the loan repayments you'll hurt yourself in the long run. Something in the $1,000 to $3,000 region would be a safer bet.
If you're really strapped for cash, offer to buy something for a friend in exchange for cash. So your friend gives you $1,000 to pay for his new laptop and then you borrow money to pay for it, repaying most of the loan with your friend's money.
4. Make small purchases on your credit card
If you hate the idea of taking out a loan or have such a bad credit score that borrowing 50 cents from a friend will be a challenge, you can rebuild your credit score using your credit cards, although this will take a long time.
Using your credit card to make small purchases and then paying your bills in full will over time improve your credit score, but take care not to use too much of your available credit. This is because the proportion of your credit balance you use affects your credit score-if you have a $10,000 credit limit and use $9,000 of it every month, that's not good.
On the other hand, using your credit cards to pay for restaurant meals (provided you're not eating at Waku Ghin every day) or groceries is a good idea.
5. Don't apply for or cancel credit cards
There's a time and place for everything, and now is definitely not the time to apply for new credit cards, or to cancel old ones. Each time you do either, your credit score takes a small hit, which is really the last thing you need right now.
6. Sit back and wait
If you've been put on the blacklist, trying all the above tricks isn't going to get you off it right away.
In fact, it can take 3-5 years before your name is cleared, depending on how serious your case is. Yes, 3-5 years is a long time. By then Singapore's population might have risen to 50 million and we might all be living in capsules. But on the bright side, that gives you quite a bit of time to clean up your act.