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KUALA LUMPUR: About 69% of Malaysians have good or strong credit scores, an improvement over last year’s 65%, but the nation’s financial literacy rate is still below average, said RAM Credit Information Sdn Bhd (RAMCI).
Its CEO, Dawn Lai, said people generally do not bother about financial literacy when they do not require credit.
“A lot of people think that they don’t need to apply for credit, so they don’t need to bother about their credit score. That itself has some implications in terms of the financial literacy level. This lack of awareness is where more efforts should be done by the government agencies and private sector to drive the benefits of having a good credit (health),” she told a press conference at the launch of RAMCI’s Credit Health Month 2019 here today.
She said in developed countries, such awareness is higher where banks and lenders differentiate strongly between good creditors, enabling them to enjoy lower interest rates.
In Malaysia, banks have also adopted risk-based pricing, offering different interest rates and loan terms to different consumers based on their creditworthiness.
The Credit Counselling and Debt Management Agency had revealed that Malaysia only ranked 26th among 30 participating countries in terms of financial literacy in the 2016 Report for the Organisation for Economic Cooperation and Development.
According to RAMCI’s 2019 Credit Score Profile, 38% from a sample base of 4.2 million individuals are found to be strong, 31% good, 21% fair and 10% weak. About 71% of the sample base were aged 44 and below, which is the prime age for taking on credit.
Lai said credit scores are usually weighed down by the payment history. For example, not paying instalments for car loans and housing loans on time and dragging loan payments for several months. Another example is not paying the minimum payment for credit card bill and spending beyond one’s means, resulting in inability to service the loan obligations.
“If you don’t pay well, potential lenders may not able to give you further credit because that may exacerbate your situation,” said Lai.
The study discovered that individuals’ credit score profile grew stronger with age, given that 56% of those aged above 55 had a strong credit score profile as compared with only 29% among those aged 34 and below. The lower percentage of strong credit score among the millennial group is possibly due to their shorter tenure of credit history and inexperience of managing credit.
More than half of those surveyed also have credit card limit utilisation of less than 60%, which is healthy. About 39% of credit monitoring tool JagaMyID subscribers also exhibit improvement in credit score over time.
“The credit growth is still healthy in Malaysia. The banks are reporting growth in credit year-on-year and that also give them the opportunity to give out more loans,” said Lai.
