Credit score

In the same way that test scores help assess a student’s academic ability, credit scores are a prerequisite for a borrower’s ability to repay a loan. A credit score is a number that depicts a consumer’s creditworthiness. When you take out a loan, banks and financial institutions check that you are able to pay the loan back in full and on time. Your credit score is a powerful tool to support this decision.

Credit scores have a specific hierarchy. The higher the score, the better a borrower looks to potential lenders. A credit score is based on credit history: the number of open accounts, total levels of debt, payment history, and other factors.

According to FICO (Fair Isaac Corporation), a world-leading credit rating agency, credit scores are calculated by looking at five key factors:

PAYMENT HISTORY (35%)

shows whether a person pays their debts on time. Most credit scores are assessed based on a borrower's payment history. Serious and timely repayment is the most important factor affecting an individual’s credit score.

AMOUNTS OWED (30%)

The total amount of loans and credit utilization ratio you’re using compared to your total credit limit issued by banks or credit institutions. According to experts, people with ideal scores tend to keep an average credit utilization ratio of around 7% of their credit limit.

LENGTH OF CREDIT HISTORY (15%)

The length of time you’ve had your credit account. This length should be as long as possible so that the bank or credit institution can judge your financial behavior in a more comprehensive and complete manner.

NEW CREDIT (10%)

Opening new lines of credit is often unpopular, especially for a short period of time. The longer your lines of credit are (which gives you a long credit history), provided they have been active for at least 6 months, the higher your credit score will be, which helps you build a long and solid credit history.

CREDIT MIX (10%)

The variety of credit products you have, including: credit cards and loans (student loan, house loan, car loan, etc.). Experts believe that if a borrower has used a lot of financial leverage and pays on time, he/she can handle different types of credit debts.

In addition, consumer finance companies use credit scores to evaluate the probability that an individual will repay loans in a timely manner. They also regularly review the borrower’s score, especially when deciding whether to change an interest rate or credit limit on a credit card.

In Vietnam, a CIC credit score is available to indicate an individual’s creditworthiness. CIC credit scores are assessed and ranked by the National Credit Information Centre of Vietnam (CIC) to judge your potential credit risk. Credit scores are assessed based on credit history and fall within a range of 403 to 706, with 403 being poor and 706 being excellent.

Back to Mai and her dream of a new laptop. Her goal is to buy a MacBook. However, the small amount of money she has saved is not enough to afford the laptop, while the sales promotion for the product is going to end soon. Therefore, Mai thinks of applying for a loan at a reputable consumer finance company, so she doesn’t miss out on such an opportunity.

Mai’s credit score will help a lot because it is one of the bases for deciding how much deposit she’ll need to pay to borrow money for the MacBook she’s always dreamed of. Therefore, she needs to check her credit score.

BUT HOW?

How to check your credit score

There are two ways to check your personal credit score: look it up at the CIC counter, or use the website or mobile app. Currently, CIC has deployed a portal to connect borrowers to the website cic.gov. vn and the CIC credit connect mobile app. To view your credit information, you can follow these steps.

STEP 1

Login → Select Khai thác báo cáo và làm theo hướng dẫn (Export reports and follow instructions). Individual borrowers should log in on the CIC credit connect app, while group borrowers should use the website.

STEP 2

Select Mua Báo cáo (Buy Reports) → Enter the OTP to complete the transaction.

STEP 3

Select “Xem” (View) or “Tải về” (Download) to view the report on the screen or download the report to your device.

Regularly checking your credit score will help you determine your ability to repay in a reasonable and clear way recognized by financial institutions. In addition, you can control your financial situation and make plans to improve if your credit score is poor. It's fine if your credit score is already high, but you should regularly check your credit score and keep it high.

How to maintain your good credit score

Here are some rules to help you improve your credit score.

PAY YOUR BILLS ON TIME

Six months of on-time payments in a row can result in a noticeable difference in your score. Since your transactions do not leave any outstanding balance and don’t accrue over the next term, you receive a higher credit score according to your payment percentage. Just like that, your credit score significantly improves over 6 consecutive months and you own a good credit history.

In addition, a bad credit history lasts for at least 4 - 5 years and can’t be changed. If you have lots of debt, you should make a plan to gradually pay off the outstanding balance. The more debt you pay off, the more eligible you are when seeking a loan from the bank in the future. You also need to know that late payments or missed payments not only lower your credit score, but also result in much higher late payment fees and penalty interest rates.

INCREASE YOUR CREDIT LIMIT

Regarding the credit utilization ratio (numerator) to credit limit (denominator), if the credit limit is increased (i.e. the denominator is increased), the credit utilization ratio will be decreased. This means that your ability to repay is more secure, leading to an improved credit score. Moreover, remember that when your account is in good standing, you get an increase in your credit limit as this is how the bank helps you to spend comfortably with more available money.

BORROW/OPEN A NEW CREDIT CARD ONLY WHEN REALLY REQUIRED

You need to assess your loan needs based on your current income to ensure that you always take control of loans as well as your credit score. The reason is many people want to open multiple credit cards at many different banks and financial institutions just to take advantage of more offers. However, for credit cards, financial experts recommend opening a maximum of two cards per person: you can diversify offers, consumer loans, and create a basis for credit rating in different cards while easily managing and limiting unnecessary risks and fees.

MONITOR YOUR CREDIT REPORT REGULARLY

This helps you regularly update your credit utilization ratio to make an effective consumption plan and limit unnecessary spending to improve your credit score. What's more, when paying close attention to your credit report, you can spot inaccurate data in a timely manner to prevent negative actions that impact your credit score: for example, large-value loans made by your account but not requested by you increase the loan, etc.

If you follow the above set of rules, you can improve and then maintain your credit score and create a long and solid credit history.