Do you enjoy being in piles of debt? Does your definition of “a good time” involve rolling around in unpaid bills, like some kind of reverse Scrooge McDuck? No? Well a significant number of you must be lying, because the government seems sure you do. That’s why they’ve decided to ruin every credit card marketer’s day, by tightening unsecured loans. See how it affects you:
Our Debt is Growing
Between 2011 and 2012, the amount of debts written off (by banks) rose by 21%. Our ratio of household borrowing to GDP has been rising right along with it: from 64% in 2007, to 77%*.
Nothing to panic about. Not yet.
Borrowing often accompanies economic growth, and South East Asia’s booming this decade. If economies were body sizes, and you put us next America and Europe, we’d look like an Ralphie May at an anorexia convention. And as far as rising wealth (and debt) go, we’re nowhere close to countries like Korea.
So the good news is, we have money. The bad news is, we’re getting too used to spending it.
Hence, the authorities’ tightening of credit across the board.
(*No, we’re not acting like teenagers who just found daddy’s Amex. About three quarters of our household debt is tied up in home loans.)
Changes to Be Made
The changes to unsecured credit affects credit cards, along with some personal loans (including the ones from licensed money lenders). The following changes are to be rolled out between now and 2015:
From December 1st, 2013:
- All Financial Institutions (FIs) to conduct debt and income checks before raising credit limits.
- Whenever FIs receive information that suggests someone isn’t credit-worthy, they must run debt and income checks.
- Persons above 55 years old can only get credit cards if their personal assets exceed $750,000. Alternatively, they can get a guarantor. Said guarantor must earn at least $30,000 per annum.
From June 1st, 2014:
- FIs must run checks on any borrower’s outstanding debt and credit limits.
- FIs can only raise your credit limit with your written consent.
From June 1st, 2015:
- FIs must inform borrowers of how long it will take to clear a debt, if they only make minimum repayments (usually $50 a month).
- FIs must inform borrowers of what the total debt will be in six months, if they make no repayments.
- Anyone who fails to repay credit card bills (or other unsecured loans) for 60 days or more cannot apply for more credit. (Yes, even from other banks or FIs)
- FIs cannot extend credit to anyone whose total outstanding debt across all lenders exceeds 12 months of their income*.
(*If the debt remains in excess of 12 months of the borrower’s income for a period of 90 days or more)
How It Affects You
There are two main ways this will affect you.
- Application Time for Credit Cards and Loans Might Take Forever
- You May Want to Start Paying Down Debt NOW
Application Time for Credit Cards and Loans Might Take Forever
If you apply for a credit card right now, all you need’s your CPF statement, or three months of your pay slip. I’ve never heard of approval taking longer than a month, and rejections are rare. With the new requirements, that might change.
FIs now have to dig up your whole credit history, and that tends to stretch out the application process. If you have multiple outstanding loans, charges you’re still disputing, a fistful of credit cards with different amounts owed, etc. then bring some hair wax to the bank counter.
It’ll be good for the beard you’ll grow while waiting.
To avoid the hassle, you should research which cards are best for your lifestyle beforehand. Remember that every switch might be that much more inconvenient from now on. Use SmartCredit.sg to compare the reward systems of credit cards in Singapore.
You May Want to Start Paying Down Debt NOW
Credit is going to be a lot harder to get, come 2015. If you have any plans in the near future (e.g. start your own business, take loans to study, pay for your wedding) then you’d better plan right now.
Start paying down your debts as soon as possible, so you won’t face liquidity issues later.
Besides, credit’s also been tightened for car loans and home loans. You may as well work on your debts now, before they start affecting your total debt servicing ratio (TDSR).
andrewarchy, himenohogosha, Swami Stream,
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