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Higher credit score, bargain for lower interest rate: RAMCI

August 4, 2018 8:10 AM
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KUALA LUMPUR: It is widely known that a higher credit score could help grant an individual better offers for credit cards, a housing loan, a car loan or a mortgage.

However, not known to many Malaysians, a better credit score could also be used as a bargaining chip to negotiate with banks for lower interest rates, be it for a mortgage, a car loan or credit cards.

"There are cases where credit card holders have successfully negotiated for a lower annual interest rate of 15% from the average rate of 18% due to their better credit scores," said RAM Credit Information Sdn Bhd (RAMCI) Chief Executive Officer Dawn Lai.

She said an individual with a better credit score could get his or her credit application approved faster, and bargain for reduced deposits required by utilities or telecommunications companies.

"However, over 60% of Malaysians are not aware of their credit scores compared with their peers in developed countries such as the US or the UK, where knowing one's credit score seems common knowledge," she said.

Lai said a credit score is a numeric number that predicts how likely one is able to pay back a loan or other credit obligations on time, whereby different lenders have their own standards for rating credit scores.

"For instance, RAMCI's i-SCORE ranges from 201 to 781 with ten risk grade from one to 10, with a higher credit score indicating a better credit health that could provide a better creditworthiness of an individual to the lenders or credit grantors," she said.

Citing a RAMCI survey which tracked over two million Malaysians aged between below 20 to over 55 recently, she said, fortunately, over 60% of the respondents belonged to "good" and "strong" score categories.

"However, when the respondents are broken down into age groups, we noticed that most of the millennials (aged 35 and below), who constitute 43% of the two million respondents, fell under the 'weak' and 'fair' categories.

"This shows that generally, the younger generation has weaker credit scores compared with older respondents," she said, adding that failure to pay bills on time, maximising one's credit limit or paying only the minimum due, as well as a lack of awareness, were the major factors that dragged down their credit scores.

"In early adulthood around the age of 20, a person may not need to have a better credit score, but when he or she intends to build a family or accumulate assets, a healthy credit score is very useful in order to secure loans from banks," she said.

Besides, Lai noted that a high credit score did not necessarily correlate to one's income level.

"We do see people who are not high-income earners building strong credit scores and vice-versa, it is all up to one's financial discipline and behaviour to pay off their debts on time," she said.

She pointed out that being able to keep balances low on credit cards, paying off debts rather than moving them between credit cards, not having any overdue accounts, and not facing bankruptcy or legal action over one's credit position would help an individual build a solid credit history and maintain a high credit score.

An individual also needs to check his or her credit report regularly for accuracy as it is important to know one's credit health, she said.

She said the government and private sector could start providing education on money management to the younger generation right from secondary school.


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