Are you looking to begin something new and potentially expensive? Maybe you're buying a house or perhaps a brand new phone.
As you may know, you'll need a reasonably high credit score — around 600 at least — to secure a good loan. Increasing that score, and trying to plan your next move, can be challenging. There's no full-proof way to reach an exact number — especially given that your score is only updated monthly by credit reporting agencies.
However, there are things you can do long (and short) term that will increase that score. Depending on where your score starts from, there's no reason you couldn't raise your score each month for a year.
As mentioned above, creditors report information to credit reporters every 30 to 45 days. In NZ, those reporting agencies are Equifax, Centrix and illion. You can even request credit checks on demand — however, this will damage your score. View our blog on how credit inquiries affect your score for more detail on this subject.
So, if you start building your score now, you'll likely see your credit score improve in 30 days — by a small amount. Keep it up, and in a year, you could move into a new 'range', which is the way credit reporting agencies talk about where your credit score sits. If you're in a good range, it can mean better interest rates and loans overall.
We've got a whole other blog about what these ranges mean for your credit, which is worth checking out before you commit yourself to a new loan.
Be aware of bills.
Bill repayments also update monthly, including phone, power, credit cards, rent and down payments on any items you've purchased on instalment payments.
Your payment history makes up most of your credit score — so make it good. If you start missing payments or overextending your credit card, that information will feedback into your score. But, on a positive note, if you are seen meeting costs each month, that adds to your score. You should see some development in your credit report in a year.
If you're serious about increasing your score real quickly, it's wise to consider doing some calculations yourself. If you want to increase your score, you could try focusing on your' credit utilisation' — which is the percentage of your credit limits that you use.
How does this work? Say you buy a pair of shoes for $200 on your credit card. And your credit limit is $500.
Working out your credit utilisation is simple; 200 ÷ 500 = 40%. So you're utilising 40% of the credit that's allocated to you for a month.
What does my credit utilisation say about me?
Lower utilisation rates are reasonable. They mean you're not close to maxing out your credit cards, and they show that you have control over your spending habits.
If you're worried about your limit, it's possible to increase what you can spend on your card. Don't push your limit up to high numbers, though — credit lenders might wonder why you need so much money on a single credit card.
Another thing to remember.
Pay off those debts — don't let them accumulate. While you don't have to avoid all credit transactions, you can still be seen applying for some considered loans.
But don't overextend yourself either, and try to pay everything you owe back overnight. Our tip is to sit down with a calculator and develop a budget. That way, you can pay what you owe back regularly, gaining good credit whilst still leaving enough in your account for spontaneous purchases or emergencies.
Check for mistakes.
We don't want to get your hopes up, but it's happened before — credit reporters do make mistakes on reports. So if you think there's a possible error on your credit history, it pays to check your credit report yourself. You can always dispute what you find with the credit reporter.
Generally, you can improve your score by keeping a good track record of payments over time and making sure you meet them. With each payment, your score improves, and inside of a year, you could see some fundamental differences.
Unfortunately, though, credit reporting relies too much on a case-by-case basis that it's hard to give one correct answer. Your score depends on every payment and traction you make, with some affecting your score more than others. This is why we suggest honouring all payment agreements, avoiding any potential problems in future.