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This article first appeared in Personal Wealth, The Edge Malaysia Weekly on July 15, 2019 - July 21, 2019

More Malaysians are becoming cognisant of the need to have better credit behaviour, according to the latest findings of RAM Credit Information Sdn Bhd (RAMCI). This is shown through stronger scores and more frequent self-checks on their credit health.

The credit reporting agency’s 2019 Credit Score Profile study revealed that 69% of the 4.2 million individuals sampled generated good or strong scores — an improvement over last year’s 65%.

At the recent launch of RAMCI’s credit health month, CEO Dawn Lai stated that 44% had checked their credit scores at least once in the past six months while 11% checked every month. “There was a 20% increase in individuals who performed self-check on their credit scores.”

Lai tells Personal Wealth that the improvement in the public’s credit scores are a “positive trend” and can be attributed to the fact that banks have tightened their lending requirements over the last couple of years. “So indirectly, people have become more aware of the importance of maintaining good credit health. They know that if they do not maintain good credit profiles, banks may not approve their loan applications. As a result, they are managing their credit better,” she adds.

The study also found that credit scores grow stronger with age — more than half (56%) of those in the 55 and older age group have strong credit scores. By comparison, only 29% of millennials (those aged 34 and below) had strong credit scores. Lai chalks this to the fact that younger people have shorter credit histories in general and are not as experienced as their older counterparts when it comes to managing credit.

“They may have received credit facilities quite recently. So, some of them may not know how to use them responsibly. The younger ones usually take on unsecured credit such as credit cards and personal loans. A small portion of them use credit to buy cars and an even smaller portion use it to buy houses,” she says.

Lai points out that consumers in developed countries tend to have better credit awareness and are therefore able to enjoy lower interest rates. Banks in Malaysia implement risk-based pricing on credit facilities, which give varying interest rates and loan terms based on consumers’ creditworthiness, she notes.

“When you are in a higher-risk group, meaning that the probability of repayment is lower, you will be charged higher interest rates. When the likelihood of you defaulting is low, you would get lower interest rates,” says Lai.

“Some banks are good at applying this pricing strategy, especially when they do proactive marketing to existing credit card users. They reach out to you and encourage you to take out a personal loan based on your unutilised credit limit.”

The RAMCI study said more than half the sampled individuals had credit card limit utilisation of less than 60%, which Lai says is a healthy indicator. Those who are offered a higher credit limit should not refuse it as it is good for their overall credit profile, she adds. “If you have the financial discipline, it is always good to have a higher limit because the lower the limit, the faster or easier it is to reach the limit. This, in turn, will drag down your credit score.”

What is in a RAMCI credit score report? Apart from a 12-month payment history and approved loan/financing track record, it also includes the length of the credit history, new credit applications and your legal track record — any legal action taken against you as a defendant.

To improve one’s credit score, Lai suggests keeping balances low on credit cards as well as other revolving credits to dispute any inaccuracies in credit reports and maintain a long credit history with a good track record.

To reach out to more people and encourage the public to keep track of their credit health, RAMCI currently offers a 50% discount to users of e-wallet Boost to purchase products such as Personal Credit Report Plus, JagaMyID and JagaMyID Plus. Individuals can look forward to more initiatives from RAMCI’s tie-up with e-wallet provider Boost, says Lai.

“Axiata Digital Services Sdn Bhd [developer of the Boost app] subscribes to our products as well and it is interested in the micro-lending space. As we get to know them better at a later stage, we may be able to discuss how we can collaborate further, such as including their database of users into ours so that we can provide better credit-scoring capabilities.”

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