Every time you make a late repayment, that information is recorded by your lender and collated by credit reporting agencies. These actions (among others) form the basis for your credit history – a comprehensive record of all your borrowing and repayments.
Your credit history is then summed up in a single number – your credit score. If your credit score is low, you may find it difficult to secure a home loan or even get a credit card.
What goes into my credit score?
When banks and other lenders approve credit, they’re always running the risk that you will fail to pay them back. To help reduce that chance, they predict your future behaviour by looking at your financial past – your credit score.
To give lenders an idea of your past behaviour, your credit score will include the following, according to Consumer NZ:
- Missed or defaulted payments.
- Credit transfers.
- Hardship applications.
- Risky borrowing such as payday loans.
- No history of credit (which can have the same effect as bad credit history).
Getting quotes for home loans or credit from several different providers used to appear as a black mark on your credit report and negatively affect your score. However, in October 2019, a new law came into effect that banned credit reporting agencies from reporting requests for quotes or enquiries for credit.
That means shopping around for a loan will no longer affect your credit score – it’ll only be affected if you actually apply for credit.
How can I check my credit score?
To improve your credit score you have to know what it is. Checking your credit score is as easy as visiting a website, creating an account and requesting your full credit report, which may take up to two or three weeks to arrive. There are three main credit reporting agencies in New Zealand:
Alternatively, you can check Credit Simple’s website. These guys provide a simplified credit history and report that includes all the important stuff and can be viewed instantly.
How can I protect and improve my credit score?
If you’ve got a bad credit score right now, it’s not the end of the world. With good financial management over time, you can improve your credit score if you:
- Always, always make debt repayments on time.
- Pay off as much debt as you can.
- Avoid applying for new loans.
- Hold onto to safe, good debt like your mortgage and pay it off regularly.
If you want a home loan, a car loan, a credit card or any other type of credit, you should check your credit score and make sure it’s up to scratch. If you need a hand taking care of your debt, improving your score and applying for loans, give the team here at Money Empire a call. We’re experts when it comes to debt, and our service is almost always completely free. Use our helpful tools and guides to help you create a long-term financial plan.