facebookIs having a credit card important to build a good credit score? When will a good credit score be useful? (Like real life example of needing a loan)? - Seedly


26 Aug 2020

Credit Cards

Is having a credit card important to build a good credit score? When will a good credit score be useful? (Like real life example of needing a loan)?

Been listening to Dave Ramsay, who is very against having debt but the FIRE community in general encourage having credit card for miles and cashback as well as building credit score.

Just wanted to have some insight on how Singaporean feels about this topic.

Discussion (4)

What are your thoughts?

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Having a credit card with the maximum credit limit possible would be good for your credit rating. However, a few factors affecting your credit rating are 1) do you pay your credit card bills on time? 2) % of credit limit used.

Having a good credit score is helpful when you apply for housing loan. As banks would access your credit rating to decide on the maximum amount they will be willing to loan you. They can’t loan a million dollars to just anyone right!

Take note that both extremes (having credit card vs no credit card) can affect the banks decision for eg.

1) No credit card. Financial institutions would not be able to determine much off your credit report and would therefore classify you as “unknown risk” which will lower your maximum loan-able amount.

2) High credit card limit but with habit of not paying off credit card bills on time. Financial institutions would take this into account (can be seen from your credit report) and would thus classify you as “risky”. Which would also cause your maximum loan-able amount to go lower.

You may access the following website to obtain your credit report.

So my suggestion is, hold on to a credit card and pay your bills on time.

P/s the above information is a very very simplified explanation. Hit me up if you have any queries!

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Having your 1st approved credit card and with prompt full payment will actually helps in your credit bureau score. So subsequent unsecured lending facilities might be easier (if your repayment record is prompt, full payment on time). But please also do take note not to have too many credit facilities with MANY BANKS, as there will be an aggregated unsecured limit granted (each back usually grants 2-4 times of your monthly income). If your unsecured limit exposures are too high, it might affect your next important loan (eg. HDB loan etc...)

best practice is to figure out what sorts of spenders and rewards you're into (Cashback; miles or points). Cashback is self explanatory. Miles is if you love to travel and offset your miles for air tickets. While points can just exchange for example shoppIng vouchers etc.. once you decided the above, my recommendation is to stick to 1-2 card to maximise your rewards. This is also to keep your unsecured limit to a bare minimum.

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