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Understand the Basics of Credits and How to Avoid Getting into Bad Debt

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Understand the Basics of Credits and How to Avoid Getting into Bad Debt

This article is contributed by Credit Bureau Singapore.

“Credit” generally refers to the ability to borrow money or access goods and services with a promise to pay later. Paying on credit terms can come in handy during cash-tight periods when you are in need to pay off a big-ticket item. However dire financial effects can happen if you abuse the use of credit and do not use it responsibly.

What are the common types of credit and loan facilities available?

Credits can be split into Secured and Unsecured lending. Secured credit will usually require you to pledge a collateral where typically the amount borrowed is dependent on the value of the collateral. On the other hand, unsecured will not require a pledge of collateral but the credit limit is usually largely determined by the individual’s annual income and other factors.

Common unsecured credit facilities in Singapore’s market are credit cards, personal loans or overdrafts. These are revolving credit that allows the borrower to continue to use a certain limit without additional interest charges. An individual is only assigned with a maximum amount of credit limit that he is able to utilise from, the available credit limit will decrease as new purchases are transacted onto the credit account. Interest will be charged onto the credit facility for any unpaid outstanding balances.

Secured loans are usually disbursed in a lump sum and repaid in fixed monthly instalments with added interest over a longer period of time. Typically, secured loans are used for big ticket items that is not easily repaid using cash. Common secured loans found in Singapore are Mortgage Loans and Motor Vehicle Loans.

Why You Should Not Over Borrow

Borrowing beyond your means can leave you struggling financially as you go further into debt. Consider all the other existing loans that you have and understand your financial standing before applying for additional loans. Do not borrow for the sake of repaying another debt as you may risk falling into multiple, bigger debts which makes it even more difficult for you to repay in the future. It is also important to do ample research and clear any doubts with the lenders before you agree to take up any new credit/loan facilities.


Your repayment records are consolidated under the CBS Consumer Credit Report. Maintaining a good credit reputation can make it easier and faster for you to obtain loans in the future as well, especially when you need urgent cash in unforeseen situations like - paying for big hospital bills.

Tips to Using Credit Responsibly


Where can I get a copy of my credit report?



Last but not least, be sure to follow and like Credit Bureau Singapore's Facebook and LinkedIn pages for more useful content and financial tips to maintain a good credit reputation!

Read also: Comprehensive Guide to Data Protection Officer - What SME Owners Need to Know [Updated]
Read also: How to avoid being a victim of credit frauds/scams?
Read also: Comprehensive Guide to Understanding Moneylenders Credit Bureau (MLCB) Loan Information Report
Read also: How to Understand Your Credit Report

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