Personal Loans - your credit score matters

3 January 2017

Personal Loans - your credit score matters

personal loan credit score

Whether you’re already aware of your credit score or it’s a new concept, it’s important to know that it plays a key role when you are applying for and managing your personal loan.

What is your credit score?

Your credit score, or record, is a rating of your borrowing behaviour. If you have borrowed money in the past, or have signed up to a long-term contract such as a mobile phone, then your behaviour will have been tracked and reflected in a credit score.

If you paid your bills on time and made the correct payments when they were due, you will have a good credit record. However, if you were over 30 days late with payments and this caused the lender to take action to recover their money, you may find your credit score has been affected. A default on a payment can remain on your record for up to five years.

How is a credit score used?

A credit score is used by anyone who might lend you money. It’s also often used by people or organisations who may be entering into a contractual relationship with you and want to check your trustworthiness and likely ability to pay bills on time. For example, landlords, employers, mobile phone companies and others.

If your credit score is good, then it won’t impact you. A poor credit score on the other hand, can get in the way of what you want. Some companies may choose not to lend you money if they are concerned about your ability to meet payments. Others may choose to charge you more to mitigate the risk of lending you money. This could be in upfront fees or in the form of higher interest rates.

Before you apply for a loan

It’s a good idea to know your credit score before applying for your personal loan. This can help you understand whether you’re going to have any issues borrowing money.

Even if you’ve had a positive borrowing history it’s worth checking your credit record before you begin looking for a loan. This will allow you to check you’ve not been the victim of identity fraud or had an issue placed on your record in error. If you discover there is incorrect information on your file you should notify the credit agency straight away to get it amended.

How do you get hold of your credit report?

In New Zealand, you can apply to access your credit report through any of three providers. It’s free to access a copy of your report if you apply online and your request is not urgent. If you need the report within five working days, you usually have to pay a fee.

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

Once you have a personal loan

Once you have applied for and received your personal loan, you’ll have a contract with your provider that outlines the requirements for payments. It’s incredibly important you meet this contract’s requirements if you want to keep your provider happy and protect your credit rating.

Improving your credit score

Your credit score may not have been at its best when you applied for your personal loan. That could be because you were struggling to stay on top of your payment commitments or it might just be because you missed a payment without realising it.

Whatever the reason for your poor credit score, it is possible to improve it. If you can manage your loan payments on time, you’ll find this has a positive impact on your credit record. Direct debits are a great way of ensuring your payment is received exactly when it’s needed and for exactly the right amount. Then you don’t need to worry about life getting in the way of managing your loan.

An opportunity to change

It’s worth keeping track of your credit record by checking it every year. This not only helps you detect fraud and address it quickly, it also means you can track the improvement in your score if you had previously suffered from a low rating.

If your credit record impacted your ability to apply to borrow money in the past, you may find your situation has changed. If that’s the case it could be possible to negotiate an improvement in interest rates or the cost of your loan. Remember it never hurts to ask, and being proactive in managing your credit score is a great way to start the conversation.

A good credit record is a great starting point from which to apply for a personal loan. It shows you can be trusted to meet your contractual requirements, and you can be trusted with the money you apply for. Being proactive in managing your credit record is a great way of protecting your credit score and getting it where you want it to be. Take control of it today and you could benefit from the positive impact on the cost of your borrowing in the future.

If you’d like to find out more about personal loans, you’re welcome to contact the team at AA Finance on 0800 600 888.

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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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