If you have had money troubles in the past and it shows on your credit profile – can you still take out a personal loan? The answer to this question is a solid, maybe. But before we get into the nitty gritty, it’s important to understand what is meant by ‘bad credit’.
First off, credit (reports) is neither good nor bad. It all depends on how the lending bank will interpret the information they see.
Of course, many lending banks might take items like late payments, loan defaults or more than three highly utilised credit cards as a sign of poor money management. And this might then lead them to deem you as having ‘bad credit’.
But still, banks have different ways of evaluating one’s credit profile. Thus, even if you have been rejected at one bank, it does not mean that all banks will send you packing. You might be approved for a loan albeit at higher rates. So in this sense, bad credit is subjective.
If you are still in the dark about the concept of personal credit ratings and reports, do read our ultimate guide to credit scores in Malaysia.
What is a bad credit score?
To those of you who know what your credit score is all about, wonderful! To those who are less familiar, that’s still OK because we all need to start adulting at any one time!
In short, your credit score is the one measurable number that stands between you and the lender (for example, the bank, when you are applying for a loan). The better your score, the better your chances are at:
- Getting your loan approved
- Getting a more competitive interest rate
In Malaysia, the two most influential sources to get your credit reports are CCRIS and CTOS.
CCRIS and CTOS
CCRIS falls under the purview of Bank Negara Malaysia whereas CTOS is a private CRA (Credit Reporting Agency) under the Credit Reporting Agencies Act 2010. While CCRIS draws information about you from financial institutions, CTOS relies on related information from the likes of JPN (National Registration Department), SSM (Companies Commission of Malaysia), and even from the Insolvency Department.
Therefore, both CCRIS and CTOS are able to provide credit reports to indicate your credit payment ability as well as the management of your financial responsibilities and commitments.
Alternatively, there’s also RAMCI that can provide you with your personal credit information at your disposal for a fee.
Now that you’ve had a refresher on where to access your credit scores, here’s what you need to know if your scores aren’t looking so great.
Let’s take a look at CTOS credit scores here:
As a general rule of thumb, aim to improve by one bracket at a time. So if you’re at Fair (between 651-696), then aim for the next level above.
Here’s a reminder of how your CTOS score is calculated:
What does a bank pay attention to?
So, there’s a credit report – as we have mentioned profusely in this blog and all our other blogs – and it’s the main reference point for financial institutions to determine how well you utilise your finances.
In laymen terms, banks and lenders can be spooked by the following poor impression you give them such as:
High DSR (Debt Servicing Ratio)
A DSR effectively calculates how well you can make your repayments based on your net income against monthly financial commitments.; to stay on the safe side, you need to keep a DSR of below 60% to avoid being flagged up
Missed, late, or defaulted on repayments
Missing out on your credit card statement and hence last month’s payment? Not only will you be charged interest on top of the outstanding amount plus a late fee by the credit card provider, your CCRIS banking history would show you to be behind for a month.
Special Attention Account
If your CCRIS report shows “Special Attention Account”, financial institutions will not be allowed to lend you. This usually means that a bank or financial institution is monitoring the situation closely while in the process of recovering a loan – or even in the midst of taking legal action.
Numerous credit applications within a time frame
You can come across as desperate – or a high-risk applicant – to banks and lenders if you’ve made multiple applications for loans and even credit cards especially in a short time span.
GoBear tip: Your PTPTN loan status will also be reflected in CCRIS. A loan is a loan – and you still need to pay it back.
So … I can get a loan with bad credit?
Yes, you might have a chance of securing a loan, even with ‘bad credit’. But this depends on if you can convince a lending bank that you can promptly repay the loan.
You might be able to do this by showing a strong income stream, engaging permanent employment with a major corporation and perhaps even producing a form of collateral (e.g. property you own), a co-signer or guarantor.
Still, even with a guarantor, you aren’t guaranteed a personal loan; the decision ultimately lies with the bank.
How do I up my chances for a personal loan?
Here’s what you can do to improve your chances of successfully getting the financing you need:
1. Get a copy of your credit report
Before you apply for a loan, it’s a good idea to check out your credit report first.
Often times, applicants aren’t aware of their scores, good or bad. Now once you find out that your credit is not quite so shiny, you can take the necessary steps to improve it before you apply for a loan. You can get your credit report from the Credit Bureau of Malaysia via their Customer Service Centre, BNM LINK, Head Office, or Bank Negara Malaysia Regional Offices/Branch.
2. Dispute discrepancies
Sometimes, things appear on your credit report that you do not agree with.
For instance, a lender may have reported that you are not making timely payments. When in fact,you had paid up what you owed! Mistakes like these do happen and it’s one of the reasons why you should really take a look at your credit report periodically.
Bear in mind that it’s not just bank borrowings that colour your credit report, your CTOS file also shows if any legal action has been brought against you. This could even include unpaid utility bills where your cable or internet provider files a suit to collect dues owed by you.
If you want to dispute a claim made against you, do request a data review.
3. Clear all arrears
If you are late with credit card payments, car loan instalment or others – do pay it off ASAP.
Remember that your credit score is one major way to indicate your abilities as a good (or not-so-good) paymaster. And it’s hard to get a loan when you are showing that you have trouble covering your dues as it is.
4. Wait it out
When you do pay off all your dues and balances, it will take approximately 12 months before it is cleared from your record.
So sometimes, your only option is to play the waiting game. However, in the meantime, if you are strapped for cash or in need of emergency funds, you might want to try your luck with a credit card instead. It’s a much better option than loan a shark, don’t you think?
5. Build good credit
This option may or may not be doable for everyone due to the time factor. But if time is on your side, working to improve your credit is one of the best things you can do! This is because with good credit comes higher approvals and lower interest rates.
Improving your credit profile involves paying all your bills on time, keeping your credit utilisation under 20% to 30% (the lower the better) on your credit cards, cultivating strong savings and ensuring that none of your accounts are dormant, among others.
6. Apply for a smaller loan amount
Although, you may want a large loan, the bank might be more comfortable to loan you a smaller sum.
Now if you successfully repay this lighter loan, you’ll be improving your credit profile and your chances, the next time you apply.
7. Support your loan application
Even though personal loans are mostly unsecured, when you have poor credit, you may need to present a type of guarantee to the bank to help your application along.
It may not always work but it is certainly worth a try. As mentioned above, a guarantor, consignor or collateral is one way to go, but you can also pledge financial assets too.
8. Apply for the right type of loan
Some banks offer special personal loans to those with less-than-perfect credit scores or lower incomes. Since these types of loan cater to your credit troubles, you may be in a better position to secure the loan.
9. Apply to different banks
Don’t just apply to one bank; try putting in an application with two or three.
Each bank will use individual metrics for deciding on whether or not you are creditworthy. If you are in a “long-term relationship” with a particular bank, you may have a better chance of getting approved with them. Now if you do get approval from all three, use it to negotiate lower rates.
However, if your applications are denied everywhere, it’s time to seriously look into your finances. We don’t mean to scare you, but it could be a red flag that you aren’t managing your money well enough.
My loan was approved even with poor credit scores. Now what?
Yes, you can still secure the loan you desperately need if your credit score is less than impressive. However, it may not be at the terms that are most favourable to you.
Pay special attention to the following before you sign on the dotted line:
You may have applied for a 24-month loan, but instead you were offered a loan tenure of 48 months instead. A longer loan period means an extension to the amount of interest to be paid – if you decide to accept the offer.
Depending on your risk level as an applicant in the eyes of the bank, you may not always be granted the full amount of loan you applied for. And if you’re in dire need for funds, you might be forced to seek further financing elsewhere to close the gap.
Once you’ve established your loan tenure, loan amount, and interest rate offered, make sure that you are able to make the monthly repayment as scheduled.
You might also want to find out more about some of these common mistakes many people make with their personal loans.
Where else can I get a loan from?
If you are unsuccessful in getting a bank loan, there are additional choices to explore. Not all of these options are applicable to you and your situation based on the different eligibility criteria, but it’s always good to know that there are options out there.
Here are two worth looking at.
Available exclusively only for civil servants. So if you’re working for the government, one of many local municipal councils, or selected government-related agencies, you’ll be able to apply for a koperasi loan.
If you’re running a micro enterprise, you can apply for small business loans that range from RM1,000 up to RM50,000. Keep in mind that microfinancing is designed for business financing only and not as a personal loan.
Keeping good credit is key to qualifying for a personal loan – or any line of financing credit that you may need. If your current credit score leaves room for improvement, then take decisive actions to improve it further. Remember, your score can change every month.
Making timely payments is the first thing you can do; set up payment instructions with your bank, and even calendar reminders if it helps you toe the line. And if you have a credit card, aim to pay more than the minimum balance for each month.
Start saving more, spend less and find ways to grow your money,we know you can do it!
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