Good credit counts - Understanding your credit score

16 August 2016

Good credit counts - Understanding your credit score

Good credit counts

Have you ever wondered what your credit report says about you? There’s no time like the present for getting to grips with the importance of your credit status.

Key points to know:

  • Reviewing your credit report is a quick and easy way for finance companies (and potential employers) to assess your credit worthiness
  • You can access a copy of your credit report free of charge by contacting one of three New Zealand providers
  • Improve your credit score by complying with the lending conditions of your finance company. Paying on time and for the correct amount is very important. It’s up to you to communicate with them proactively if you think you will have a problem making a payment.

Having a good credit report is important. That’s because credit reports are used by finance companies to assess whether you are a reliable customer. So if you’ve never heard of credit reporting or you’re unsure what your position is, now’s a great time to get to grips with what your credit report says about you.

What is a credit report?

If you’ve ever heard someone refer to their ‘credit history’ then you may understand what credit reporting is all about. A credit report tracks the borrowing history of an individual, and scores them based on their historical ability or inability to pay on time and comply with a borrowers conditions.

What does a credit report do?

A good or clean credit report makes it easier for you to borrow money. This will demonstrate to a lender that you can be relied on. A poor credit report does the opposite. Lenders find it more difficult to finance people with a poor credit score.

Finance companies protect themselves from the risk of lending to individuals with poor credit reports by either declining applications or imposing additional fees. This is usually in the form of higher interest rates.

If you have not yet borrowed money you may have no credit report on file. This can be as challenging to your borrowing position as having a poor credit report because the lender has no credit history to assess your reliability. It’ not impossible to get credit with no history, but be prepared to jump through a few extra hoops. It can be a good idea to get the ball rolling by applying for credit on a small amount over a short period of time, so that you can evidence reliable payment behaviour before needing credit for big ticket items like your home.

Credit reports are also used by any other organisation that may want to review your financial reliability. Most commonly a prospective employer may choose to check your credit report before offering you a job.

What information is held on your credit report?

Your credit report will include your recent borrowing history including details of any default you may have made on payments in the past. A default occurs when a payment is overdue by 30 days or more and a lender has taken action to try and recover their money. Defaults can remain on your file for up to 5 years after the payment has been made.

Your credit file will also include information about how many credit applications you have made, when, and how much for. It may also contain information about your current borrowing including both the size of your debt and repayment information.

How do you access your credit report?

If you want to investigate your credit status you can apply to access the information that is held on your credit file. There are three providers in New Zealand, all of whom allow you to request a report online and free of charge. If you require a report rapidly (within 5 working days) you will have to pay a fee.

The providers are: Veda, Dun and Bradstreet and Centrix.

When you request a credit report your main priority should be to check that the information held on your file is accurate. Identity fraud is common and it is essential that the details held are correct. If you spot any incorrect information you can get it amended by raising it directly with the credit agency.

How do I make sure my credit status is good?

Looking after your credit position is simple. It’s a matter of making sure that you meet your financial commitments as agreed with your finance provider. That means making payments on time and for the agreed amount. You can make this easier by always reviewing your budget before applying for finance, and ensuring that any repayments that you commit to are within your financial means.

Making too many applications for finance can impact your score, especially if it seems you may become over-committed. Preserve your credit score by only applying for finance after you have fully investigated your options and selected your preferred provider.

And lastly, if you’ve had problems managing your repayments in the past that have negatively impacted your credit score, don’t throw the towel in. With time and consistently good repayment behaviour, it’s possible to rebuild a good credit score and put yourself in a better financial position in the future.

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Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure the content is correct, the information provided is subject to continuous change. Please use your discretion and seek independent guidance before making any decisions based on the information provided in this article.

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