In getting loan funds, credit score is one aspect that needs attention. A credit score is a value assigned to each individual, with the goal that lenders can determine how much credit they wish to apply for.

Like a financial ‘report card’, the borrower can also track your loan history, payment cycle, how many times you’ve been in arrears, how much credit you currently have.

The credit score size ranges from 000 to 999. Values ​​above 720 indicate a safe zone, while scores below 640 are classified as negative. If it turns out a low credit score, meaning the person is risky enough to get a loan.

This is because the bank does not dare to take the risk if, in the middle of the credit period, the debtor is in arrears or even ignores the installments that must be paid. This is obviously very bad for them.

Often people are unaware that they have a credit score. In fact, if you have a personal account at a bank, or have submitted any type of application, your credit score will automatically be calculated from there. This track record is also linked to the Financial Services Authority (OJK) through the Financial Information Service System (SLIK).

(Read also: CekSkor, CekAja credit rating service will be released in early 2020)

If you want to get a loan, first make sure you increase your credit score as much as possible. Your credit score is calculated based on your payment history, amount of debt, length of credit history, type of credit you have, and how often you apply for credit again. You want to improve your credit score. Here are some effective ways to improve credit scores that should be applied:

1. Pay your bills on time

Do you have an invoice, such as a credit card? Don’t forget to pay it on time, if necessary, pay in full. Don’t pay off a nominal minimum payment occasionally, as this will only increase your debt in the future. Also, any unpaid or late invoices will be recorded by the creditor. If you later want to apply for a mortgage, the bank will of course look at this credit score to make decisions about setting interest rates and so on. Basically, all forms of transaction logging will be covered.

2. Fixed income and have assets

In addition to paying your bills on time, you also need to have a steady income. There is no benchmark for the amount of salary, as long as the income is regularly received each month. If necessary, have at least some assets to further convince the bank. If your income is recorded in a bank account, in addition to ownership of assets such as houses, shops or other buildings, this greatly affects your credit score level.

3. Reduce your debt

To increase your credit score, reduce your debt activity as well. For those with more than one credit card, it’s actually not a problem. As long as you always pay on time, so that your credit status remains regular. If you can’t, it’s best to close one of your credit cards. Another trick, you can consider moving the bill balance to a lower interest credit card, with a balance transfer system.

4. Pay attention to the installment part

Ideally, a person’s maximum payment amount is 30% of their monthly income. Having payments over 30% of your income will only worsen your credit score, because lenders will perceive you as a risky customer. How is a healthy installment determined? Suppose your income is IDR 10 million per month. This means that the maximum installments and interest that need to be paid per month is IDR 3 million.

5. Do not apply for competitor credit

Finally, avoid applying for credit at the same time. Financial institutions can lower your credit score, if you feel that several credit transactions have been made too close together. Therefore, when you are still within the credit period for one item, it is best not to apply for new credit for other goods. This will automatically lead to a decrease in your credit score. Give a period of six months to a year, after the first credit period runs smoothly with no repayment delays.

The bank will certainly not be negligent in granting and determining the nominal loan. Only with a good credit score, it will be easier for you to get approved for a loan as expected. You can do the five things above on a regular basis to boost your credit score. Although in the process it is impossible to get right away. Good luck!

Components that influence credit scores

‘The higher a person’s credit score, the lower their credit risk. Vice versa.’

Credit scores play a very important role in a person’s financial assets. With a good credit score, you can get loans faster, receive the best interest rates on loans, so it’s easy to get credit for buying homes, education, and businesses.

For banks, credit scores are one of the factors used in credit decisions in order to minimize the risk of default. Aside from that, with a credit score, it’s not difficult for banks to ensure that credit is objectively taken on by prospective debtors. Meanwhile, for customers, a credit score is a reflection of financial standing that can describe a person’s level of compliance with meeting their financial obligations. Credit scores can foster positive customer behavior to always meet their obligations.

Do you want your credit score to stay in the safe zone? First consider the components that affect your credit score below.

The bank, as the lending party, will pay close attention to your billing and payment history. For example, from using a credit card. The indicator is how disciplined you are in paying your bills. Is he always on time before the deadline? Do you pay immediately in full or with a minimum payment?

(Read also: OJK approves the use of credit scoring to enhance credit distribution in Indonesia)

Late payments automatically affect your payment history. Finally, your credit score is also negatively affected. Additionally, this component of your payment history has the greatest influence on customers’ credit scores.

The next factor affecting credit scores is none other than debt. Having a lot of debt, especially from credit cards, will instantly lower your credit score. Getting a new credit card or loan is also likely to be more difficult. Even if your debt-to-income ratio is low, but you still have a lot of outstanding credit card debt, your loan application can still be denied.

Having a longer credit history is very beneficial. This is beneficial on the bank’s part, as they will be exposed to much more information about your spending habits.

Therefore, if you are financially capable of paying all debts at the bank, leave an open structure and keep regular installment payments. This is so that you still have an active credit history.

Having a high credit limit is really tempting to spend more and more. However, it is not recommended to spend your credit limit all at once or in a pinch because it has a big effect on your credit scores. How come? Because with the end of the credit line, the monthly installment fee will automatically increase dramatically. There are fears that this condition could trigger bad credit or a default.

Having various types of accounts will also be quite profitable, because this shows that you are skilled in managing more than one credit. Open new accounts based on your needs, don’t just have a mix of credits on one card. In reality, this isn’t a significant factor in evaluating someone’s credit score, unless you have a lot of other information to determine that value.

In Indonesia, customers’ credit history is managed by the Financial Services Authority (OJK) through the Financial Information Service System (SLIK), while credit scores in Indonesia are provided by the Credit Information Management Agency. Credit scores in SLIK are divided into 5 groups, including:

• Collectability 1
• Collectability 2
• Collectability 3
• Collectability 4
• Collectability 5

Repayability 1 means that the debtor has a regular credit without problems, i.e. always pay the installments on time. While the collectability is 2, that means your credit is in an unsafe zone. At this stage, you should pay off any outstanding credit debt immediately because your state is starting to be less trusted by creditors. The zones you need to be most aware of are chargeability 3, chargeability 4, and chargeability 5. Being in this zone means you have a chance of being rejected by creditors.

Don’t let your credit score get tarnished. The key is that in addition to being consistent in paying bills, planning and calculations are needed as accurately as possible before deciding to take out a new loan or installment.

A good credit score will also have a positive impact in the future. Especially when we need a loan from a specific bank or financial institution. A high credit score automatically assists you in disbursing funds.