Understanding Credit Scores
Credit scores are very important to your financial health. Bad credit can really limit your lifestyle and affect your ability to get credit for things like your first home or a new car. But lots of the time too many of us don’t know anything about them until it’s too late. If you have financial goals for the future, it’s important to understand how credit scores can help or prevent you from reaching those goals.
Credit Score Definition
Your credit score is what allows lenders to look into your credit history, before considering approving credit such as mortgages, hire purchases or auto loans. It’s basically a way to determine how your track record reflects your responsibility when dealing with credit. Utility providers, prospective employers, landlords and insurers can all also check this so it’s important you are aware of your credit score before it’s too late.
How Are They Calculated?
These are the main foundations of how your credit score is determined, but may vary in priority with different companies.
How Much Debt You Have
they won’t just look at the total figure of debt, but also your current balances vs your available credit.
How Often You Pay Your Bills-
Punctuality usually makes up around 35% of your credit score, so it’s very important to avoid making late payments.
How Much Credit You’re Applying For
– They will check how many pending applications you have at the same time, and if you have a lot this is likely to affect your credit score badly.
The Types of Credit You Already Have –
Whether you usually just apply for personal loans, or can maintain a good credit card account too will also play a part in your credit score.
Your General History With Credit –
if you’ve had failed payments, defaults or even had the account taken to a debt collector, this will all show and affect your credit score too.
How Can You Repair a Bad Credit Score?
- Make sure you pay your bills on time and if you have a few pay the least amount on all of them instead of prioritising some over others.
- Create a payment plan. If you know how much you owe, and have a plan to pay it back you’re less likely to fail payments and get into more debt.
- Pay off accumulating debt as soon as you can as they will cost you more over time and affect your credit score.
- Don’t apply for lots of credit. In fact avoid applying for any while you’re repairing your credit unless it’s an emergency and will help preserve your income.
What Are Credit Scores Used For?
- Buying your first home with a mortgage.
- Applying for personal loans
- Getting a business loan to start your own business
- Setting up power, water, internet etc. for your house
- Employers may check your credit score before offering you a job
- Landlord or property managers may check it before offering you a rental property
How do You Check Your Credit?
It’s important to be aware of your credit score status, especially if you’re thinking of applying for credit. You have a legal right to free access to your credit report, and if you need to check your report or amend any errors you can contact one of New Zealand’s thee credit reporting companies;
- Centrix http://www.centrix.co.nz/Personal/Get+my+credit+report.html
- Dun & Bradstreet https://www.checkyourcredit.co.nz/
- Veda Advantage http://mycreditfile.co.nz/my-credit-file-standard