Credit Cards Personal Finance

Credit Score Guide: How I Got An AA Rating As A Student

In a previous post, I talked about whether credit score matters.

Spoiler: it does. At least, in my opinion.

Credit score can appear to be something elusive that is hard to understand because how exactly it is calculated is not fully disclosed.

Instead, CBS simply lists a few factors that affect your credit score, along with a short description of what each factor entails.

Even though we don’t know everything about it, we do know enough to build up our credit score as much as possible.

In this post, I will share with you the steps I took to achieve a credit score rating of AA as a student in just 1 year.

Let’s first take a look at the 6 factors that affect your credit score, as taken from the CBS website.

1: Utilisation Pattern

This refers to how much credit you use across all your accounts.

A low credit utilisation pattern will translate into a better credit score.

2: Recent Credit

This refers to how recently you have gotten access to new credit facilities such as a new credit card or loan.

Recent credit activity will negatively affect your credit score.

3: Account Delinquency Data

This refers to the presence of missed/late payments on any of your credit accounts.

Thus, it is a direct indication of how likely (or unlikely) you are to pay off your credit.

As long as you have a record of delinquency, your credit score will be tarnished significantly.

4: Account History

Quite literally, this refers to the history of credit payments on all your credit accounts.

A long history of credit payments results in a better credit score, especially if the payments are made in full and on time every month.

According to CBS, the last 12 months of your credit repayment activity, including closed and defaulted accounts, will directly contribute to calculating your credit score.

5: Available Credit

This refers to the number of credit accounts you currently have that are open and active.

Generally, having more available credit results in a better credit score.

Of course, this is only true if you have been making your repayments punctually every month.

If managed poorly, having many credit accounts will end up hurting you instead.

6: Enquiry Activity

This refers to the number of requests made by banks or financial institutions to look at your credit report.

The fewer enquiries you have, the better your credit score will be.

Guide: How I Got My AA Credit Score

It may feel overwhelming trying to navigate the various factors affecting your credit score to get it as high as possible, especially if you’re a student and are new to credit cards.

But don’t worry. If I could do it, then you definitely can too!

Without further ado, here are the things I did after applying for my student credit card to achieve a credit score rating of AA in just 1 year.

Disclaimer: I am unaware of how CBS calculates credit scores. I do not claim any of the steps/tips listed below to be 100% true or effective. They have worked in my experience and I am simply sharing what I have done and why I did them. You may experience different results.

1: Spend With My Credit Card Every Month

Remember how credit account history is one of the factors that affect credit score?

I wanted to rack up a good history of credit payments. But in order to do so, I needed to have statements to pay off.

Spending with my credit card every month ensured that I had a credit statement to pay off every month.

As the months went by, my history of credit repayments accumulated.

2: Spend <10% Of  My Credit Limit

My goal here was to improve my credit score by ensuring a low credit utilisation rate.

While CBS’s definition of utilisation pattern seems to suggest that it is the absolute amount of credit spending that matters, I believe that it is the credit utilisation rate that matters instead.

Credit utilisation rate is the ratio of the amount of credit spent to the amount of available credit.

For example, if I have 1 credit card with a credit limit of $500 and I spend $50 of your credit, my credit utilisation rate is 10%.

The reason I believe this is that if 2 people have access to different amounts of credit, but spend the same dollar amount of credit, then the perceived risk of defaulting on their payments are different.

From before, if I spend all $500 of my available credit, it should raise some concern to the bank because I am seen as spending all the money that is available to me.

This may indicate some financial difficulty or emergency, so the bank may not get repaid for the amount I have spent.

Meanwhile, if you spend $500 of credit but have a credit limit of $5000, banks have little reason to be concerned because you are only spending 10% of the money that is available to you – so you should have no problems repaying this sum.

Since the credit limit for a student credit card is $500, I kept my card spending to <$50/month.

Most of the time though, it was closer to $10~$20, ie a credit utilisation rate of <5%.

3: Pay Off Credit Statement In Full, On Time, Every Month

This is the most crucial step in trying to obtain a great credit score.

If I had to guess, I’d say that account delinquency data has the largest impact on credit score.

So my objective here was to ensure that I only made full, prompt payments to avoid having delinquent data.

By keeping my credit utilisation rate low, I was able to ensure that I could always afford to pay off my credit statement in full.

In order to remember to pay off my statements on time, I found out which date my statement is released every month and set recurring monthly reminders after this date.

This point ties back in with credit account history as well –  the longer the history of full, prompt credit payments, the better the credit score.

That’s it!

If it looks simple, that’s because it is. No fancy tips or tricks.

Looking at these 3 simple steps, it’s not hard to see how they help to achieve a great credit score.

They cover, in my opinion, the most important things when it comes to credit – a long and good track record of repayments with a low-risk, well-controlled spending behaviour.

P.S. For anyone looking for proof, here it is!

acc opening date

enquiry date

credit score

Tip:  Don’t use your student credit card for rewards

As it is, student credit cards aren’t great for earning rewards.

The best ones only offer 1% cashback such as the Maybank eVibes card and the CIMB AWSM card.

Instead, use debit cards for the bulk of your spending. 

Even as a student, you can earn up to 2.4% cashback using debit cards, as I described in this post

By consolidating the bulk of your expenses on debit cards, you will be able to keep your credit card spending to a minimum and achieve a low credit utilisation rate, boosting your credit score.

Closing Thoughts

I’m not saying that if you follow everything I did, you will be guaranteed to achieve an AA credit score rating in 1 year as I did.

These steps worked for me and the logic behind them appear to be consistent with the factors affecting credit scores, as stated by CBS.

However, there might have been other factors at play that I was unaware of, or other financial indicators that could skew results.

Nonetheless, the steps I outlined above should be able to help you improve your credit score, barring any incidents that would raise red flags to CBS. 

To summarise,

Credit score really isn’t a complex topic.

By following 3 simple steps, you can improve your credit score over time.

  1. Spend with your credit card every month
  2. Limit spending on your credit card to <10% of your credit limit
  3. Pay off your credit statement in full, on time, every month

If you don’t have a credit card yet, I highly recommend you to apply for one and start building up your credit score as long as you know how to spend responsibly.

I will be sharing even more tips to boost your credit score in the future, so be sure to look out for that! 

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