Live & Learn
Common Credit Traps & How to Avoid It
As we progress into different phases of our lives, we realise that our needs and wants will constantly change against time. We find ourselves always finding more ways to look for a new source of income to support our new needs and desires. Sometime our initial rash decisions or miscalculation can also put us into serious debt problems when we overestimated our ability to repay them. Here are some common credit traps to avoid and tips to better manage your finances.



1.    Instalment payment plans

Instalment payment plans are also known as BNPL (Buy Now Pay Later) is a sale tactic to make things more affordable for consumers by breaking down big ticket items into multiple payment tenures, also giving consumers the perception that they can easily repay back. Though this is a good way to pay for big ticket items, take a step back and stop yourself from making any impulse purchase. Calculate the total cost in the big picture and also factor in the other possible expenses that might come along the way. Do not forget your simple day to day expenses like daily household needs, monthly bills, insurance or any existing loans that you have yet to clear. List down all the existing or potential expenses you think you might have before you decide if you really want to commit to another big-ticket item.


2.    Terms and conditions

Before you jump into applying for a new credit facility, be it a big scale facility like housing loan or small scale facility like personal loan, take a moment to run through the agreement for any underlying cost or interest-free repayment periods that you should be aware of. Ask the sales representative more questions to ensure that you do not miss out on any important terms or details. This can help you to avoid incurring any potential penalty charges or interest fees. The sales representative might even provide you with personal tips to ensure that you have a smooth debt repayment journey. For example, if you are planning to apply or refinance your housing loan, make sure to always check the expiry date for your fixed rate lock-in period, if you have any. Some of the home loans that are already out of the lock-in period will tend to have a spike or surge in interest rates.


3.    Taking cash out of your credit line

Credit facilities such as cash advance and balance transfer gives you the flexibility to take fast cash out of your unused credit line. Unless necessary, avoid applying for such cash advance services as it will also have a detrimental effect on your Credit Score against time. Cash advances usually comes with a fee as well as interest charges if you do not repay back in time. A tip is to always make a habit to monitor your spending so you still have sufficient savings to pay for any unexpected expenses.  


4.    Minimum repayments

Most banks or financial institutions allow consumers to make the minimum repayment in order to avoid the late fee. However take note that if you do not make the full payment, your outstanding balances will accumulate together with daily interest charges and hence making it more difficult for you to pay up your bills in the future. Try to make full payment whenever you can as making only the minimum payment will have a detrimental effect on your credit score. If you realised that you are having difficulties paying up your bills, contact your bank or approach organizations like Credit Council Singapore (CCS) for more debt management programmes or advices.


5.    Max out your credit limit

Some banks or credit card issuers allow you to spend beyond your assigned credit limit with or without an over limit fee. You should be mindful of the repercussions that might come along if you always have a habit of maxing out your credit limit, especially if you are unable to pay back the full amount in time. Some banks allow you to request for a temporary credit limit increase if you need to make a large purchase. Go through your Credit Card statements and check if you have been overspending beyond your limits, alternatively you can request your bank to lower your credit limit so as to prevent you from sinking into more credit debts.


6. Make a habit to check your Credit Score

Take the time out to check your Credit Score too. If you have recently applied for a new credit facility with any of CBS members, you can download a free CBS credit report within 30 calendar days from your approval or rejection letter here: https://www.creditbureau.com.sg/available-options.html


7. Other tips

Make it a habit to monitor your credit card statements from time to time, go through your transactions and spend responsibly to make sure you always stay within your budget. You can also request to set a lower daily transactional limit on your card if you wish to stay committed. It is also advisable to set aside any emergency funds to pay back any unexpected bills, a good gauge is to have at least 3 months’ worth of rainy day funds to cover your daily essential expenses.

Lastly, follow Credit Bureau Singapore’s (CBS) Facebook for more of such updates and even tips on how to stay credit active.