Here are three tips to make these four key digits work to your best financial advantage:

1. Know your credit score

You can get a credit report from The Credit Bureau Singapore (CBS) online for just $8 to find out your credit worthiness. The score rates your financial activities, which includes your loan repayment history, bank account activities, the number of credit applications you made, and much more.

An algorithm aggregates your credit behaviour and comes up with a score between 1,000 and 2,000. The lowest end of the range which is rated HH, indicates that the individual has the highest risk of defaulting on a payment – this is a score of between 1,000 and 1,723. On the opposite end, a score of between 1,911 and 2,000, gives you the highest credit rating of AA, which indicates the lowest default risk.

It goes without saying that you should avoid getting the lowest score and target an  AA score. But if you just started working and have a short credit history, you are likely to start out with a lower score - and a BB score (1844 to 1910) may be good enough for financial institutions to approve some credit applications. What is most important is aiming to be a responsible borrower, whatever your current score may be.

2. Understand why a good credit score matters

For most loans above $500, banks will use your credit score to assess your ability to pay back loans and your risk of default. This in turn helps them determine how much they are willing to lend to you.

If you have a bad credit score, you are more likely to be charged a higher interest rate, get a smaller loan quantum, or worse, have your loan application rejected. In the finance industry, a bad score could also result in your job application being turned down.

A good credit score, on the other hand, will give you better access to credit products. For instance, it could improve your chances of having your desired credit card, a bigger mortgage, or personal loans approved.

3. Maintain good payment and borrowing habits  

Always pay your bills on time, as borrowers who receive a second or third letter reminder letter about a late payment will likely have their credit scores lowered.

Having a long track record of on-time payments can also improve your score. Lenders view loan applicants with a longer credit history in a favourable light. Hence, it may make sense for young adults to get a credit card soon after landing their first job, in order to kickstart their credit histories. 

It is also important to never default on a loan, as this will leave a black mark on your credit report indefinitely.

In the same vein, never take on too much debt within a short period of time, as this raises the risk of missing payments or getting over-extended. Even keeping multiple credit lines and credit cards open can affect your score. Therefore, it is advisable to close any credit lines that you are not using, as well as to avoid making more than four or five credit facility applications within a short time.