Your credit score plays a vital role in your financial life. Your score is a way for lenders to see how likely you can pay your debts back on time and is based on your history of borrowing money and paying it back.
How are credit scores judged?
Credit scores are represented as a number between 0 and 1,000. A score of 0 is terrible — a score of 1,000 is perfect but challenging to achieve. Most credit scores are between 300 and 850, with any score above 700 is something to celebrate. You can view our breakdown on credit scoring ranges elsewhere, including what each score could open up for you financially.
Who looks at my credit score?
The banks do — and so do telcos, insurance agencies and utility companies.
The better your score, the better the deals and rates you can get. A bad credit score might make companies unwilling to lend to you. If they decide to take the risk, they might charge you a higher interest rate, just in case you don't pay your loan back.
Are credit scores just for mortgages?
Your credit score affects mortgages, but it even comes into play when you want to open a bank account, get a phone contract, or even rent a flat. That's because lenders want to make sure that they're lending money to someone who can afford to pay it back.
How do I know what my score is?
Yonda, our credit scoring app, updates you monthly on your credit score and provides you with a free credit report, which breaks down your score in detail. Knowing your score is a great way to see how you're going and work out what you can do to fix things.
I checked my credit score, and it seemed low? What should I do?
The first thing to do is to look at your credit history. Credit histories are lists of all your loan transactions — so every payment you've made (or missed), any car or personal loans you might have, store cards and more.
You can improve your credit score gradually by changing what you do financially. Here are some ideas:
Pay your bills.
Make sure you always pay back your loans and bills fully and on time. Late and non-repayments will bring down your credit score significantly.
This also counts for your credit card repayments. Making timely payments will help you avoid any severe interest charges.
Check your credit scores.
There are three credit reporters in New Zealand — Equifax, Centrix and illion. Ensure they've got the correct information on you, and if you see any errors, talk to them to get those errors fixed. Examples could be anything you see on your credit file which you know wasn't you (a repayment made or a loan taken out in your name).
Don't share your bills.
Make sure your name's not on any bills shared with others, no matter how much you trust them. If your friends or family fail to pay their bills back on time, your credit score will suffer.
Hold off on credit applications.
Every time you apply for credit, a new lender performs a check on you — and every review affects your score. Make sure you're only applying for credit when you need it.
Cancel your unused cards and accounts.
Multiple sources of credit make you look riskier as a credit user. If you've got a credit or store card you're not using, cancel it. However, if you're still making repayments, you should keep the card open.
You are missing or defaulting on payments.
That includes everything from loans to utility bill payments. Defaults are even worse than missed payments — they'll stay on your credit record, even if you repay the debt in full.
Lots of credit checks.
If lenders see that many agencies or organisations have been checking your credit score, they might think you've been applying for more loans than you can afford.
You are moving your debts around.
Shifting your debt around between credit cards or applying for hardship, like a payment holiday, can be bad for your credit score.
I do not have a credit score.
No credit score can be just as bad as having a poor credit score. When you don't have a credit history, there's no way for a lender to see whether you're a safe borrower.
Your credit score is a number between 0-1000 that lenders use to determine your interest rate when you apply for a loan. The higher the number, the better the interest rate offer you can get — so it pays to check.
Luckily, you can do heaps to change your score, like paying off your existing debt or bills, limiting credit applications and cancelling unused cards.