If you clicked on this story, it was probably because that headline meant something to you. After all, you’ve probably already encountered some of the issues associated with having a low credit score.
This is not the end of the line for you. Like everything else in this world, it can be fixed.
We admit, it won’t be easy. Nothing worth doing is ever easy. However, you’re lucky because banks and financial institutions want you to have a good credit score. So everyone wins if you manage to pay off your debts and improve your financial health.
What you need to do depends on how you ended up in your current situation. Each individual has their own unique set of financial priorities and problems, but we can outline solutions for some of the more common issues faced by Malaysians.
Credit card balance transfer
We get it. Credit cards are not as easy as they appear to be. One moment you’re tapping away and buying things, the next you’re suddenly looking at a monthly statement that you cannot hope to pay off.
In this case, you’re just stuck paying off the interest on your credit card each month to avoid incurring penalties. It’s probably been months – or even years – since you’ve been able to touch that credit card; and you haven’t managed to make a dent in how much you owe.
One way of saving yourself is through a credit card balance transfer. That is to transfer the amount you owe to a credit card with lower interest rates. This helps you pay off the amount owed, as you’re no longer just stuck on interest payments.
In fact, many balance transfer credit cards also offer zero interest rates for a limited amount of time. This is to help you pay off that debt and get back on your feet. Do not take it as an opportunity to slack and spend that money on something else.
Debt consolidation
Personal loans get a lot of bad press. Most of it can be misleading. Used correctly, a personal loan can improve your quality of life; and potentially even set you down the path to improving your financial health.
Fixing your credit score here works by taking a personal loan to clear your other debts. This allows you to focus your efforts on paying off a single loan.
The aim is to gather all your outstanding debts into one loan that will cost you less in monthly repayments compared to what you were dealing with before.
We broke the math down in another one of our articles, and are reproducing it here for you to use as an example:
Total debts
| Debts/Loans | Interest rate | Repayment | Duration | Total interest |
|---|---|---|---|---|
| Credit Card A - RM10,000 | 15% p.a. | RM500 | 2 years | RM1,579 |
| Credit Card B - RM5,000 | 15% p.a. | RM250 | 1 year 11 months | RM790 |
| Personal Loan - RM50,000 | 13.09% p.a. | RM1,140 | 7 years | RM45,760 |
| Total | RM1,890 | RM48,129 |
Debt Consolidation with Personal Loan
| Total debt | Interest rate | Repayment | Duration | Total interest |
|---|---|---|---|---|
| RM65,000 | 6% p.a. | RM1,098 | 7 years | RM27,232 |
As you can see, RM65,000 in debt across multiple accounts can be combined under a single loan. This results in a reduced monthly commitment and lower total interest paid.
Of course, debt consolidation doesn’t actually solve your problems. There is still the need to actually pay off the amount in the end. All it does is make your goal easier to reach.
It also helps your overall credit score by clearing several debts at a time. This also helps reduce any score penalties that may have occurred due to missed payments.
Auto-bill payment
This is a less obvious solution to raising your credit score, and generally only works if you’re the type that just forgets to pay your bills. Automating your payments could also be a useful financial move if you have a habit of using money set aside for bills to buy other things on impulse.
Most banks offer an automatic bill payment system that transfers the appropriate amount from your savings at a set time each month. This financial move ensures that you never miss a payment, and does not allow you the opportunity to spend that money on something else.
It’s difficult to say how much a missed bill payment actually impacts your credit score. Each financial institution weighs it differently and doesn’t reveal the calculation. However, it is only good financial practice to pay your bills on time and getting on top of your bills will also help improve your score.
Financial restructuring
What if your credit score is too low to qualify for a new personal loan or credit card? Maybe the banks decide that you’re too much of a risk. After all, everyone is careful about lending money to strangers.
One way of rescuing your score is by restructuring your debts. Credit card companies and banks will gladly negotiate payment schemes to help you clear what you owe them.
If you’re unable to reach out to a bank at the moment, or you have multiple loans and credit cards, then you can also turn to credit counselling agencies like AKPK. They offer detailed advice on how to deal with your financial situation, and will be able to give you a personalised plan on how to go about tackling your problems.
No easy solutions
We get that actually solving your problem is easier said than done. After all, it feels like a Catch-22 situation. You need a loan to improve your credit score, but you need a good credit score to get a loan.
You probably have no clue about where to find these financial products either. It’s not like you were paying attention to which credit cards offer balance transfers.
If you are looking for ways to improve your credit score, we have other tips and tricks you should know.
Read more: 10 Common Credit Score Myths To Bust
