What’s your number? If you’re about to rattle off your mobile phone digits, you might be surprised to know there’s another number that might make an even bigger difference in your life: your credit score.
Many people go years without giving any thought to this particular piece of information. But understanding what it does, why it’s important and how you can improve it is a big part of getting sorted financially.
First things first, what is a credit score anyway?
A credit score is a number that indicates how solid your credit history is, and how likely you are to pay your bills on time. It’s basically an indicator of what your future behaviour might be like, and it’s used by people who might extend credit to you.
A score of zero is very bad, a score of 1000 is perfect – and most people are between 300 and 850.
If you’ve never taken out a loan, you shouldn’t assume that will mean you have a perfect credit score. Usually, you need to pay something off before you’re highly rated.
Check out our past article on credit reporting agencies for links to their sites. There may be some differences in data and score between agencies, so consider obtaining your score from more than one.
Why does it matter?
A credit score is just one of the ways that a lender will decide whether you’re a safe bet when you want to borrow money. It’s not the only thing that will be assessed, but it’s an obvious one.
Your credit score will be looked at when you apply for a mortgage, personal loan, credit card, bank account, new phone contact, and even insurance. Generally speaking, if you have a good score, you can usually get better interest rates and other deals. But if you have a poor score, it could be much harder than it needs to be to get a deal across a line.
What can you do to improve it?
The good news is, you’re not stuck with a bad score; you can always take some steps to improve it.
For example, focus first on paying everything you owe on time. New Zealand now has a system of positive credit reporting, meaning that many lenders and utility providers will report on people who are paying all their bills on time, not just those who are falling behind.
This gives you the opportunity to improve your credit score simply by staying up-to-date with everything you owe, proving your reliability. That’s not just paying your credit card or your hire-purchase on time, but keeping up-to-date with all your power bills and phone bills.
If you’ve recently moved, check that the provider of services to your former address knows about the change – some people ruin their credit scores by shifting out of a flat and leaving behind an account in their name.
You should also check your credit report and make sure that it is accurate. If there’s anything incorrect, you can query it and potentially have it removed to improve your credit score. Currently, there are four credit reference agencies in New Zealand that provide credit reports – you can request the details they each hold on you. They won’t all necessarily have the same picture.
Lastly, be careful about how you apply for new loans. Sometimes people put in applications to a range of places to see what’s on offer. But all of those lenders then run credit checks on them – and it shows up on the borrower’s credit score as if they were being turned down by all of them, even if they decided not to borrow at all.
Ready to apply?
Thinking about getting your car finance sorted? Call the team at AA Finance on 0800 500 555, seven days a week between 9am and 5pm. We’re here to help.
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.