Many young people think that living completely debt-free makes them a financial genius. They think banks will beg to give them a mortgage just because they pay for everything in cash. Spoiler alert: that is not how the real world works. Managing your debt in property investment is actually the ultimate cheat code. It is […]
Many young people think that living completely debt-free makes them a financial genius. They think banks will beg to give them a mortgage just because they pay for everything in cash.
Spoiler alert: that is not how the real world works.
Managing your debt in property investment is actually the ultimate cheat code. It is exactly how the rich get richer while everyone else stays stuck.
In this super chill, easy-to-understand guide, we are going to break down exactly why banks actually prefer to lend money to people who already have a mountain of debt. Let’s get right into it!
Let me tell you a true story. It is a story about two dudes, Ali and Abu. Both of these guys are 28 years old. Both of them work regular 9-to-5 office jobs. Both take home a clean net salary of RM5,000 every single month.
Ali is a super frugal guy. He hates owing people money. He has never owned a credit card. He has never taken a car loan. He pays cash for everything he buys. For Ali, living without any loans is the most peaceful way to live. He thinks he is the perfect customer for any bank.
Abu is completely different. Abu understands how to leverage debt in property investment. Abu already has one housing loan for his first apartment. He has a credit card that he uses for groceries. He also has an ASB financing loan. Abu’s total monthly commitments to the bank are around RM2,200.
One beautiful morning, both Ali and Abu walk into the exact same bank. They both want to apply for a loan to buy a brand-new condo worth RM400,000. Who do you think gets approved?
Ali feels super proud. He thinks his application is a guaranteed pass. But guess what? The bank rejects Ali instantly! The bank officer tells Ali his profile is “too clean” and “too empty.” Meanwhile, Abu’s application gets approved in just 48 hours. The bank even gives him an incredibly low interest rate!
Sounds completely insane, right? Why would a bank give hundreds of thousands of ringgit to a guy who is already drowning in RM2,200 of monthly debt, but reject the guy who has zero debt?
If you are a millennial or Gen Z, your parents probably taught you that debt is an evil monster. You probably grew up hearing, “Save your money and buy in cash!”
But in the modern banking world, if you have absolutely zero debt, you are basically a ghost. You do not exist in the financial matrix. Banks are businesses. They are not charities. They make their profit by lending out money and collecting interest.
But before they hand over a massive RM400,000 check to you, they need to know you are a trustworthy human being. When your credit profile is completely empty, the bank is terrified.
They have absolutely no data to judge your character. They do not know if you are disciplined. They do not know if you will panic when you have to pay RM1,500 every single month.
To succeed, you must understand how debt in property investment works. The bank desperately wants to see a track record. They want proof that you have handled the bank’s money before and paid it back faithfully. Zero track record equals extremely high risk. And banks hate high risk.
Here at FAR Academy, we always teach our newbies one golden rule: Not all debt is created equal. The main secret to mastering debt in property investment is knowing the massive difference between Good Debt and Bad Debt.
What is Good Debt?
Good debt is like a hardworking employee. It puts money straight into your pocket. It is a loan you take out to buy an asset. This asset either goes up in value over time or generates monthly cash flow for you.
Examples of good debt include:
Banks absolutely love seeing good debt on your profile. It proves that you are financially educated.
What is Bad Debt?
Bad debt is a thief. It constantly takes money out of your pocket. You use bad debt to buy things that lose their value the second you swipe your card. Examples of bad debt include:
If your credit report is full of bad debt, the banks will run away from you fast. But if you load up your profile with good debt in property investment, the banks will literally line up to offer you more money.
When you submit your loan application, the very first thing the bank officer does is check your CCRIS report. What is CCRIS? It stands for Central Credit Reference Information System.
It is a massive database managed by Bank Negara Malaysia. It tracks all of your loan movements with any financial institution over the past 12 months.
When the bank pulls this report, they are looking for specific “magic numbers.”
Let’s look back at Abu. He has three active loans. When the bank checks Abu’s CCRIS report, all they see is a beautiful, endless row of 0, 0, 0, 0, 0. This is hardcore proof that Abu is an extremely disciplined payer. The bank does not need to guess if he is responsible. The data proves it.
They know with absolute certainty that if they approve his new property loan, Abu will pay them perfectly on time. Mastering your CCRIS is the foundation of using debt in property investment to your advantage.
Here is another massive secret that most newbies completely miss. It is called the DSR, or Debt Service Ratio. DSR is the mathematical scale that banks use to measure if you can actually afford to take on a new loan. They calculate this based on your net income.
How to Calculate DSR: DSR = (Total Monthly Commitments / Net Income) x 100%
Most commercial banks in Malaysia set their maximum acceptable DSR limit around 60% to 70%. Let’s do some simple math using Abu’s situation to show you how debt in property investment really works in action.
Abu’s Net Salary: RM5,000
Abu’s House Loan: RM1,200
Abu’s Credit Card: RM200
Abu’s ASB Loan: RM300
Total Commitments = RM1,700.
Wait, it gets better. Abu’s first house is actually rented out. He collects RM1,400 a month in rental income. Because Abu is smart, he declares this rent officially. The bank adds this RM1,400 to his actual income! Total Recognized Income = RM5,000 + RM1,400 = RM6,400.
Now, let’s calculate Abu’s DSR. (RM1,700 / RM6,400) x 100% = 26.56%.
Wow! Abu’s DSR is only 26.56%! This is incredibly low and super safe.
Even though Abu has three debts, his financial buffer is huge. This is exactly why banks adore people like Abu.
Let’s talk a little more about rental income, because it is the ultimate game-changer for newbies. When you use debt in property investment to buy a house, you don’t just leave it empty. You rent it out to tenants.
When you have a legal stamped tenancy agreement, the bank recognizes that rental money as your official income. This magically inflates your total income without you having to ask your boss for a raise!
Imagine a guy earning RM4,000 a month with RM2,000 in bad personal loans. His DSR is already at 50%. He has zero assets. The bank looks at him and says, “Nope. You are struggling.”
But when you show the bank that your property pays for itself, they realize your debt is essentially free. Your tenant is paying the mortgage. Your DSR stays low. Your credit score stays high. This is the exact strategy all the big property gurus use to buy ten, twenty, or even fifty houses!
If your credit profile right now is as “clean and empty” as Ali’s, do not panic. It is never too late to start building a bank-friendly profile. Here at FAR Academy, we have narrowed it down to 4 super chill, actionable steps you can start today.
Step 1: Get Your First Credit Card (And Don’t Be Stupid With It)
Do not fear the credit card. It is the fastest tool to build a credit score. Apply for one basic entry-level card. Use it only for essentials, like pumping petrol or buying groceries. When the statement arrives, pay the bill 100% in full before the due date. Never pay just the 5% minimum! This builds a perfect “0” record on your CCRIS without paying a single cent in interest.
Step 2: Leverage ASB Financing
If you are Bumiputera, ASB Financing is the safest instrument to create a formal loan record. Start with a small amount, maybe RM50,000. Pay the monthly installment perfectly for a year. The bank will see that you can handle long-term, scheduled commitments.
Step 3: Mix Up Your Credit Types
Banks love to see that you can juggle different types of loans. The ideal mix for a young millennial is one asset loan (like a small property or ASB) and one flexible loan (like a credit card). Avoid taking multiple personal loans or buying furniture on high-interest installment plans. Those will wreck your score fast.
Step 4: Check Your Data Regularly
Once in a while, buy your own CCRIS and CTOS reports. Make sure there are no hidden surprises. Sometimes, a forgotten RM50 postpaid phone bill from three years ago can show up and ruin your chances of getting a property loan.
Understanding how to navigate debt in property investment is the most crucial skill you can learn as a newbie. Stop being scared of the banks. Stop trying to be a ghost in the financial system.
Instead, learn the rules of the game. Build a solid CCRIS report with perfect zeros. Keep your DSR in a healthy range. Collect good assets that generate rental income.
Once you prove to the banks that you know how to manage their money, you will never have to beg for a loan again. The banks will literally hunt you down to offer you money!
Remember, debt is just like fire. If you know how to use it, it will cook you a delicious meal. But if you play with it carelessly, it will burn your house down to ashes. Be a smart investor. Manage your profile well.
To make sure you guys are totally clear on this, let’s do a quick FAQ session.
It is extremely difficult. Like we talked about with Ali, banks need a track record. Start building your credit score today with a simple credit card.
Not at all! In fact, if you pay your PTPTN loan consistently every single month, it actually acts as a good record on your CCRIS. It proves you are a responsible adult.
Not necessarily. If your DSR is still below 60%, you can keep the car loan. But if your car loan is eating up 40% of your salary, then yes, you need to clear it first to make room for your property loan.
Try to keep your usage below 30% of your total limit. If your limit is RM10,000, don’t swipe more than RM3,000 a month. This shows the bank you are not desperate for cash.
