In Malaysia, credit scores are crucial in determining a person's financial health and eligibility for mortgage loans. This number, typically ranging from 0% to 100% (FinDoc) or 300 to 850 (CTOS), represents an individual's creditworthiness and ability to manage debt responsibly.
Credit scores affect an individual's mortgage terms and play a pivotal role in shaping property market dynamics.
Credit Scores Explained: Their Role in Malaysia’s Real Estate Market
Lenders use credit scores to evaluate a borrower's risk level when applying for a mortgage. A higher credit score, above 70% on the FinDoc scale or 700 on the CTOS scale, generally indicates a person's ability to repay loans on time, making them more attractive to banks and financial institutions.
Consequently, individuals with higher scores often enjoy lower interest rates, higher loan amounts, and more flexible mortgage terms. In contrast, a low credit score could result in higher interest rates, lower borrowing limits, or even loan application rejection.
According to a report by Bank Negara Malaysia (BNM), lenders in Malaysia assess several factors beyond the credit score, such as income stability and debt-to-income ratios. However, credit scores remain a primary tool in determining mortgage loan terms and conditions.
Let's break down the crucial elements that influence your credit score in Malaysia. Understanding these factors is essential for anyone looking to improve their financial health and secure better loan terms, especially regarding property purchases.
Here are the five main components that credit agencies like CCRIS and CTOS use to calculate your creditworthiness:
1.Payment History (45%): The Cornerstone of Credit:
Your track record of paying bills is the most significant factor in determining your credit score. Here's what lenders are looking at:
• Consistency in on-time payments across all your accounts
• The severity of any late payments (30, 60, or 90+ days late)
• Red flags like accounts in collections or legal issues
Pro Tip: Set up automatic payments to ensure you never miss a due date!
2. Credit Utilization (20%): Balancing Act
This factor looks at how much of your available credit you're using.
To optimize this:
Insider Advice: Consider requesting a credit limit increase to lower your utilization ratio instantly.
3. Length of Credit History (7%): The Age Advantage
While not as heavily weighted, a longer credit history can work in your favour:
Remember: Quality matters more than quantity. A shorter history of excellent credit management can still yield a good score.
4. Credit Mix and Loan Amount Approved (14%): Diversify Your Portfolio
Lenders like to see that you can handle various types of credit:
Smart Strategy: Don't open new accounts just for diversity. Focus on what you need and can manage responsibly.
5. Recent Credit Inquiries (14%): The New Credit Factor
This looks at your recent credit-seeking behaviour:
Expert Tip: Do a Soft search for a loan through an online credit screening platform like FinDoc, and try to complete all applications within a 14-30 day window. Credit scoring models often treat these as a single inquiry, minimizing the impact on your score.
By understanding and actively managing these factors, you can take control of your credit score and pave the way for better financial opportunities, including more favourable mortgage terms for your dream property. Remember, improving your credit score is a marathon, not a sprint. Stay consistent, and you'll see results over time.
For instance, lenders examine your monthly debt obligations when applying for a mortgage. Recently opened credit cards might indicate plans for future credit purchases, potentially affecting your estimated mortgage affordability. While lenders can't base decisions on potential actions, they use your credit score to assess your overall credit risk.
Understanding these factors can help individuals take the necessary steps to improve their credit scores.
Credit scores influence more than individual mortgage terms, shaping the broader property market. Areas with high average credit scores often experience faster property price growth. Individuals with better credit can secure more favourable loan terms, making property investment more accessible. As demand rises in these areas, property prices increase accordingly.
Similarly, areas with lower average credit scores may see slower property price growth. This stems from individuals' reduced ability to access favourable mortgage terms, limiting the pool of potential buyers. In some cases, lower demand can even lead to declining property values.
A study by the National Property Information Centre (NAPIC) found that property prices in urban centres like Kuala Lumpur and Selangor tend to appreciate faster, partly due to buyers' higher average credit scores in these regions compared to more rural areas.
For individuals with low credit scores, improving their scores is crucial to accessing better property deals. Some effective strategies include:
By adopting these practices, individuals can gradually raise their credit scores, qualifying for more favorable mortgage terms and increasing their property investment ability.
Malaysian government policies also influence the relationship between credit scores and the property market. For example, the Syarikat Jaminan Kredit Perumahan (SJKP) initiative promotes homeownership among first-time buyers, particularly those who may struggle to secure loans due to irregular income or lower credit scores.
Under the SJKP scheme, applicants can qualify for financing even without a fixed income, provided they demonstrate their ability to make repayments. This initiative ensures first-time homebuyers have more opportunities to enter the property market, even with less-than-ideal credit scores.
Credit scores influence mortgage terms and property prices in the Malaysian property market. Individuals with higher credit scores enjoy better access to favourable loan terms, while areas with high average credit scores often experience more robust property price growth.
Improving creditworthiness through responsible financial habits can unlock better property deals for those with low scores. Meanwhile, government initiatives like SJKP, which assist first-time buyers with lower scores, help ensure homeownership remains attainable for a broader population segment.
Understanding the relationship between credit scores and the property market empowers individuals to make informed decisions that benefit their long-term financial health and property investment strategies.
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