Improving your Credit Score for Smooth Loan Application

When applying for a mortgage, banks and lenders have a safeguard to ensure applicants’ ability to pay the loan, that is our credit score

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Lifestyle & Tips

It has been established for a long time that many Indonesians are struggling with debt. Individuals and households have continued to seek loans and credit facilities from banks or online loan services to finance their daily expenses and pay for cars, homes, gadgets, education, and even leisure expenses. Having one – or two – credit cards have become a part of society’s everyday life.

woman counting credit score improve credit score

What is credit score?

When you swipe your credit card and ‘accidentally’ purchase an item that is above your purchase power, or forgot to pay your PayLater bills, you have unconsciously put your credit score in danger.
Credit Score or Credit Rating is a measure of a person’s creditworthiness, in the form of a numerical number that is used to determine the level of creditworthiness of a person and his ability to pay obligations according to the agreement.
Financial institutions such as banks or finance companies use a credit score to analyze a person’s creditworthiness before making a decision.
The credit score generally ranges from KOL (collectability category) 1 to 5. The lower a person’s KOL, the higher the level of creditworthiness and the smaller the risk that must be borne by financial institutions, and vice versa.

What does the score indicate?

Credit scores are usually indicated by numbers 300 to 850. If your credit score is above 720, then it is included in the good or safe criteria. However, if it is below 640, the bank will pay more attention. You may have difficulty getting a new loan.

Meanwhile, the collectability categories based on their scores that are presented by BI Checking are as below:

KOL 1: Smooth Credit, meaning that the debtor always fulfills their obligations to pay monthly installments along with the interest until it is paid off without ever being in arrears.
KOL 2: Credit in Special Mention or DPK (Dalam Perhatian Khusus), meaning that the debtor is recorded to be 1-90 days in arrears on credit installment.
KOL 3: Stagnant Credit, meaning that the debtor is recorded in 91-120 days in arrears on credit installments
KOL 4: Doubted Credit, meaning that the debtor is recorded to be in arrears on credit installments for 121-180 days
KOL 5: Bad Credit, meaning that the debtor is recorded to be in arrears on credit installments for more than 180 days.

Happy young asian woman buying stuff from online retail and paying bills via banking application. Girl looking at credit card in her hand and fill data to mobile phone to complete purchase order..

How to check your Credit Score?

You can now check your credit score online through SLIK from OJK or OJK mobile app for Android. SLIK (Sistem Layanan Informasi Keuangan) from OJK (Otoritas Jasa Keuangan) is the newest information system that replaces BI Checking that provides supervision of financial information. SLIK OJK connects Bank of Indonesia and Indonesia Deposit Insurance making it easier to share data across applications. Things that can be obtained are bank records, bank inspection reports, and other related information.

How can someone improve their credit score?

  • Pay your bills on time
    This may sound cliché but there is no better way to stay clear of a bad credit record than paying your bills on time. You can opt to put your payments on debit order to avoid forgetting the due dates of payment.
  • Check your creditworthiness
    It’s always better to stay informed and know your creditworthiness. You can access your credit report through SLIK by OJK.
  • Reduce credit and loan inquiries
    The more credit and loan inquiries you make, the more they reflect on your credit profile. You can reduce this by making inquiries only when it’s really necessary.
  • Pay off debt
    Dodging debt repayments may feel convenient but there is no escaping the harm it causes to your credit profile. Pay off debt and your credit score on time will benefit you in the long run.
  • Consider debt consolidation
    Having different credit and loan streams may prove detrimental to your credit score report. You can consolidate different debt accounts so that they are managed and paid off from one place.
  • Spend responsibly
    You can keep your credit record clear by spending responsibly. This can be done by drawing up a budget, identifying priorities, and living within your means. Only seek credit in moments where it’s unavoidable and you are confident in your ability to pay on time.
  • Actively Using Credit Card
    Lastly, though this may sound contradictory to the point above, it is not well-known that credit cards can quickly increase your credit score. If you have a credit card all this time, but rarely use it for transactions, from now on try to use it. Of course, use credit cards wisely, for example shopping at merchants who work with banks and provide various attractive promos.

Applying for a loan or debt is actually okay — recommended even — as long as you are disciplined in paying bills. That way, your credit score remains healthy, in the safe zone so you can confidently apply for a new loan to the bank.