What Is a Credit Score and How Does It Affect Me?
A credit score is a three-digit number used to indicate an individual's level of financial trustworthiness based on their loan repayment history. In Malaysia, credit scores are typically taken from reports issued by agencies such as CCRIS (Central Credit Reference Information System) operated by Bank Negara Malaysia, as well as CTOS, one of the popular private credit bureaus.
Many Malaysians only start learning about credit scores when their loan applications are rejected. This situation is actually quite common, especially amongst individuals who are just starting to deal with bank loans or credit cards.
However, a credit score isn't just a number that appears in your financial report. It plays an important role in determining how much financial institutions trust your ability to repay loans. This score can influence whether your application is approved or rejected, the loan amount you're eligible to receive, interest rates, and repayment terms.
This number becomes a benchmark for banks, financial institutions, and credit providers to assess risk before approving any loan applications, credit cards, or other financial facilities. The higher someone's credit score, the greater the chances of their application being approved, and in some cases, a good score can also open opportunities for lower interest rates and more flexible repayment terms.
Why Is Credit Score So Important?
For Loan Approvals
Credit scores are used by banks or financial institutions to assess your eligibility before approving any loan applications. Whether you want to apply for personal loans, housing loans, car loans, or credit cards, your credit score will be one of the main references. The higher the score, the higher the chances of your application being approved because it shows you have a good and trustworthy financial record.
Lower Interest Rates
Additionally, credit scores also influence the interest rate or profit rate charged on your loans. Applicants with high credit scores are usually offered lower rates compared to those with moderate or low scores. This means you can save more in the long term because the amount of interest to be paid will be lower.
More Flexible Loan Terms
A good credit score also allows you to enjoy more flexible loan terms. For example, you might be eligible for longer repayment periods or larger loan amounts. This gives you more room in managing monthly budgets and financial commitments without excessive pressure.
Additional Assessment by Employers or Landlords
Not only that, your credit score can also become a consideration factor outside the context of loans. Some employers, especially in the financial or banking sector, will check potential employees' credit reports as part of the screening process. Similarly, landlords or property agents renting luxury units might be more inclined to choose tenants with good credit records because they're considered more financially responsible.
How Is My Credit Score Calculated?
Your credit score isn't just a random number; it's calculated based on various factors that reflect how you manage money consistently. In Malaysia, agencies like CTOS and the CCRIS reporting system consider several important aspects to determine whether you're considered a low-risk or high-risk borrower.
Payment History (Most Important)
Every time you pay loan instalments, credit card bills, or any other loans, everything is included in the record. If you pay on time every month, this will have a positive effect on your score. On the other hand, if payments are late, especially those overdue for more than 30 days, it can affect your record in a bad way. What's worse is if you have a record of defaulting until the case is taken over by collection agencies or courts.
Total Financial Commitments
If you frequently use almost 90% of your credit card limit or have many loans at one time, this can give a negative impression to banks about your level of financial commitment. If you only use a small portion of your credit limit, it shows that you're someone who's wise in managing expenses and doesn't rely entirely on debt.
Credit History
Individuals who have long had clean and consistent credit records usually have higher scores compared to those who have just started using credit facilities. Additionally, the types of loans you use are also considered. A mix between credit cards and long-term loans such as car or housing loans can help stabilise your score, provided that you’re paying on time each month.
Types of Credit
Your credit score also considers the different types of credit you have, such as credit cards, personal loans, and home loans. Having a combination of well-managed credit accounts can give a more stable financial picture to banks. However, this isn't the main determining factor in assessing your score. If you only have one or two types of credit, that's sufficient and there's no need to open new accounts just to add variety.
New Credit Application Activity
If you frequently apply for loans or credit cards within a short time, banks will consider you desperate and high risk. Therefore, it's very important for you to apply for financial products carefully and avoid unnecessary applications.
What Happens If My Credit Score Is Low?
Difficult to Get Loan Applications Approved
When your credit score is at a low level, most likely your loan applications will be rejected by banks. This is because low scores indicate you might have been late in paying, have unpaid bills, or are currently bearing too many active debts. Banks see all this as high risk for approving new loans.
Higher Interest Rates
If your application is still being considered, banks might impose higher interest rates or profit rates. This is because low-risk borrowers (with high credit scores) are usually given special rates. For high-risk borrowers, loan costs will become more expensive to balance out the risk of failing payments.
DSR Considered Unhealthy
Low credit scores can affect your DSR (Debt Service Ratio) rate. If your monthly debt payments are more than 60% of your income, you might get rejected for new loans, even with a high salary.
Banks May Want Extra Security
In some cases, banks might still approve your loan but ask for extra protection. This could mean finding someone to co-sign for you (a guarantor), or using something you own like your house, or car as security.
How to Improve My Credit Score?
Pay All Debts on Time
The most important step to increase credit score is ensuring all debt payments are made on time every month. This includes personal loan payments, credit cards, vehicle loans, and also PTPTN debts. If you can't pay the full amount, make sure you at least pay the minimum amount set. Consistent and non-overdue payments help build a good financial reputation in the eyes of credit providers.
Keep Credit Card Spending Low
Avoid maxing out your credit cards. Try to use less than 30% of your credit limit. High usage makes you look too dependent on credit, which can hurt your score. So if your credit card allows you to spend up to RM10,000, keep it under RM3,000.
Don’t Apply for Too Many Credit Cards or Loan at The Same Time
Frequently making loan applications within a short time can be seen as a sign you're facing financial problems. This can cause your credit score to decrease. Preferably, avoid sending too many applications and limit to one or two within a certain period.
Check Your Credit Report Regularly
Use platforms like eCCRIS, CTOS or Experian to check your credit report status. This allows you to identify any errors or information that hasn't been updated. For example, accounts that have been paid but are still marked as active. Correcting this information can have a positive effect on your credit score.
Maintain Old Clean Credit Accounts
Long and clean credit history gives the impression that you're a disciplined borrower. If you have credit cards or loans that have been used responsibly for years, avoid closing those accounts suddenly. Old stable accounts help strengthen your overall score.
Credit Score Range in Malaysia
Credit scores are usually assessed in the range between 300 to 850. Scores below 650 are considered less satisfactory, whilst scores exceeding 700 show strong financial records and high discipline in managing debt. Therefore, it's very important for each person to understand their score position and take steps to maintain it at a good level.
Here's a general guide to understanding credit score categories and their meanings:
| Score Range | Assessment | Brief Interpretation |
| 744 - 850 | Excellent | Very trustworthy, easy to get loans with low interest rates and flexible terms. |
| 718 - 743 | Very Good | Low risk, high chances for loan approval with attractive terms. |
| 697 - 717 | Good | Above average, loan applications are usually approved with standard terms. |
| 651 - 696 | Fair | Needs improvement, loans might be approved with stricter terms or higher rates. |
| 529 - 650 | Poor | Risky, difficult to get loans except with collateral or high interest rates. |
| 300 - 528 | Very Poor | High risk, almost no chance for loans to be approved without strong guarantees. |
| No Score | No History | Not enough credit information, banks find it difficult to assess borrower risk. |
Frequently Asked Questions About Credit Score in Malaysia
Where can I check my credit score?
You can check your credit score using CTOS, Experian, or eCCRIS. CTOS and Experian sometimes offer free credit reports after registration. eCCRIS is Bank Negara Malaysia's system that gets information from Malaysian banks.
Does checking my credit report affect the score?
No. When you check your own credit score, it doesn't hurt your score at all. You should actually check it regularly to make sure there are no mistakes and to keep track of how you're doing financially.
What's the difference between CTOS and CCRIS?
CTOS is a private credit reporting agency that collects data from various sources including court notices, companies, and individuals. Meanwhile, CCRIS is a credit reporting system operated by Bank Negara Malaysia and only collects data from financial institutions that report monthly. Both are important for credit assessment by banks.
I've never had a credit card, is my score high or low?
Not necessarily high. If you don't have any credit record, financial institutions don't have a basis to check your trustworthiness. This can cause your score to be low or you might not have a score at all. Building a healthy credit history is important even if you've never been in debt.
How long do bad records remain in credit reports?
Most negative records such as overdue payments or legal action will remain in credit reports for five years from the settlement date. Therefore, it's important to settle arrears as quickly as possible so your record can be cleared earlier.
