What affects your credit score?
The factors that determine your credit rating have changed dramatically in recent years, so let’s begin with a brief history lesson.
Back in the old days (okay, before April 2012), your rating was only based on negative credit events, such as defaults. This meant lenders had limited data on which to judge your creditworthiness.
Six years ago, a new comprehensive credit reporting (CCR) system was introduced in New Zealand. The upshot is that organisations are now allowed to share far more of your information with each other.
An established trend of punctual payments is a boon for your credit rating.
Should I be concerned?
If this is all sounding a little bit like George Orwell’s 1984, don’t worry, Big Brother isn’t out to get you. (Well, we don’t think so…)
These changes mean that positive credit behaviours are now tracked and considered when you make applications, which should give you better access to borrowing if you’ve been well behaved in the past.
Anyway, back to the original question. What is your credit rating based on?
Negative credit events
Even with the CCR, black marks on your credit file still have an impact on whether or not lenders will give you money. Negative examples include:
- Bankruptcies. These stay on your credit report for four years after the bankruptcy ends (more here).
- Debts worth $100 or more that are at least 30 days overdue may be reported to a credit reporting agency and stay on your file for five years (more here).
- Late payments. Forgot to pay a bill? It shows up on your credit rating even if you settle the debt before it becomes a default.
- Writs, summons and court judgements. Any court appearances relating to debt and the resulting decision negatively affect your credit rating.
- Too many credit enquiries. If you apply for credit multiple times in a short space of time, it suggests you’re desperate for cash.
Positive credit events
It’s not all bad news. Some credit information can help improve your credit score, such as:
- Repayment history. An established trend of punctual payments is a boon for your credit rating.
- Account opening and closing dates. Lenders can see where, when and how often you’ve been extended credit in the past.
- Type of credit facility. Whether it’s mobile phone bills, utilities contracts or other types of accounts, organisations can better understand your financial situation if they have more info.
- Your credit limits. Again, any information on your current creditworthiness among other lenders is useful for accessing credit from new organisations.
Credit Simple gives all Kiwis free access to their credit score, as well as their detailed credit report. See how your credit score compares by age, gender and community and gain valuable insights into what it all means.All stories by: Credit Simple