What’s Your Credit Score + Why Does it Matter?

What is a Credit Score?

It feels more and more impossible to go through life without accessing credit at some point.

Every time you apply for finance, a credit report is done to gauge your ability to repay this new finance, whether you pay other bills on time and if you are approved or not… and all this activity goes towards your Credit Score.

This Credit Score is a measurement of your ‘credit worthiness’ for lenders.

It tells a lender whether you are a high-risk borrower or a low-risk borrower. High risk means that there is uncertainty about if you will make your loan repayments on time, or even repay the loan at all. This makes lenders less likely to extend finance to you. Low risk means that it appears that you usually pay your bills on time and have repaid loans in the past. This means the lenders are more likely to extend finance to you.

The key thing is to treat it with respect and diligence when you do get credit. Mistakes and late repayments when we are younger or inexperienced can affect you later in life when you might really need access to it.

As we go through life, there may be applications for car loans, credit cards, additional finance, personal loans and possibly a mortgage – and your Credit Score will be taken into account.

If you haven’t had credit from a bank or another type of lender though (eg loans, credit card), your Credit Score will be zero. This doesn’t mean you have a bad Credit Score, it simply means you are ‘credit invisible’.

To build Credit, you could:

• Get a starter credit card – merely having a credit card but not using it will still go towards good credit but using your credit card for purchases and paying it off by your due date will increase your score even more.

• Get utility bills (power, internet etc) in your name.

• Get an overdraft.

• Take out insurance (car insurance and contents insurance).

• Have a student loan.

• Have a gym membership (all to be monitored vigilantly!)

Other points to note:

• AfterPay will help build your credit minimally but misusing it can really negatively affect it.

• Store cards can build credit too, but be cautious of these as they generally have higher interest rates.

• If you’ve defaulted on any debt obligations in the past, these may show as collections. They will show as either paid or unpaid and the amount. Either of these negatively affects your credit score, however unpaid collections are worse. While this is sitting unpaid on your credit report, your credit score can deteriorate.

• You may not be able to get new loans while you have collections showing on your credit record.

• Paying your bills late will lower your Credit Score. So, any time you apply for finance after building credit (and have been allocated a Credit Score based on this activity), a credit report will be done on you to determine whether you are approved for finance – so paying your bills on time is very important!

If you haven’t had a good credit score in the past but can show a history of good activity over a period of time, this can help build your Credit Score back up again.

So, what’s a good Credit Score – and what’s the benefit?

Having a good Credit Score means you’re more likely to be approved for loans/mortgages, and could also enjoy lower interest rates, and a quick turnaround for credit card approval.

A fair score is between 580 – 669

A good score is between 670 – 739

A very good score is between 740 – 799

A bad score is between 0 – 500 (a history of not paying bills, either at all or on time and/or owing too much money)

How can I Check my Credit Score?

In New Zealand, there are three main credit bureaus that calculate your credit score and you can apply by clicking on their name: Centrix, Equifax and Illion). You can apply online for your personal credit score, and checking it yourself won’t negatively impact you.

Want to discuss your Credit Score as it relates to getting a home loan?
Contact our mortgage brokers today - we’re here to help!

Our blog is not intended to be taken as personal advice and is for informational purposes only.
Before acting on this information, contact our mortgage broker/financial advisor to ensure it is suitable for your circumstances.