Are you being denied access to credit, or are you facing high-interest rates when you borrow money? It isn't just to do with your savings (although you will need some savings before taking out anything). Your credit score will have a lot to do with getting approved.
Getting a credit score is like getting a report card from school. Your score tells providers, banks, credit card companies and anyone else who might be interested in what you're like as someone who borrows or spends money. Your financial 'behaviour' will be labelled as either good or bad based on where your score sits.
How to improve your score.
The good news is that there are lots of easy insider tips to increase your score. They do depend a little on where you sit financially, so you may still need to consider if any of these are suitable for your specific situation.
1.) Pay your debts on time…
It's the simplest thing to do but the most commonly missed. When it happens, your score can drop significantly and, if left long enough, result in debt collectors' calls. When this happens, your missed payment will have become a default, which means your credit provider turns your debt over to someone else.
2.) ...and in full.
If you've agreed to a payment system, coming up with less than the agreed amount will count as a partially missed payment. So if you ever feel like you can't make a payment, contact your credit provider to work out another arrangement.
3.) Always contact your provider if you're unsure.
If you miss a payment, they can often help reschedule. Sometimes they won't even include it on your credit report, which means you can afford to have points deducted from your score.
4.) Don't borrow what you can't repay.
Always check the small print on interest rates to see what you can afford.
5.) Shop around for lenders.
You don't have to stick with your bank or current provider just because you've always borrowed from them. Look for a lender with the best loan deals.
6.) But don't keep multiple lenders.
Being seen applying with multiple lenders makes you look desperate for a loan and likely to dishonour the loans you have.
7.) Always check for mistakes.
Sometimes you'll be sure something on your credit report wasn't your fault, yet your score will have dropped. Always check on your credit report and query the results if you don't think they're right.
8.) Hold off on credit enquiries.
Each time you make a credit enquiry, your score will drop. That's because simply opening an account doesn't show you can repay the credit, only that you intend to borrow money, which is why it's counted as an adverse reaction. If you have to take out an enquiry, get a quotation — this will give you an idea of which lenders are willing to deal with you without dropping your score.
9.) But also remember to keep accounts open.
If you decide to get an enquiry and open an account, you should use the report to its full advantage. The longer you can keep a tab open, the more time you have to build a positive repayment history.
10.) Although, if the account is empty, close it.
No use keeping an empty account open. Too many accounts are also bad for your score, so be careful and consider the reason behind the bill.
11.) Consolidate your debt.
If you're having real difficulty meeting several different accounts, you could look at bundling your debts into one with a lower interest rate.
12.) Don't move your debts around.
Shifting debts between cards can help, but it also gets recorded on your report — so avoid repeatedly moving debt around.
13.) Time vs interest.
Although keeping an account open for longer means more interest payments, it might be a way to reduce weekly or monthly costs.
14.) Pay more than once a month.
If you can afford it, paying every two weeks instead of every month can keep your credit utilisation low and score high.
15.) Budget wisely.
There are so many little things we spend money on without thinking about it. Writing it down, and working out what you can live without, can help you meet payments.
16.) Don't share your bills.
If other people are included on your bills, their behaviour can impact your score — so keep your accounts separate.
17.) Use an online calculator.
Most banks or providers have one when you're looking for a quote. Play around with what you can afford, but make sure to check your answer against other calculators, as each has its limitations.
18.) Financial calendars.
If you're using automatic payments, make sure to check your account still. If it's empty, your payment will still try to go through as if it were complete, without you noticing.
19.) You don't always have to buy new.
Getting the latest thing on the market can feel good. But if ownership is going to hurt your account, consider leasing or buying secondhand for large items like cars.
20.) Check the interest rates.
Sometimes you can end up paying more in rates for something older. This is particularly true for houses — so make sure you get a comprehensive property report before signing on to any property agreements.
21.) Don't take out too many credit cards.
Credit cards are convenient, but taking a new one out each time, a card reaches its credit limit will impact your score hard.
22.) Keep a low credit utilisation on your cards.
Credit providers like to see you being careful with the limits of what you spend on your card — so if you can avoid the temptation, don't always spend up to your credit limit.
23.) Know your loan types.
Certain loans give you lots of flexibility but have the potential to get expensive very quickly. A fixed loan can lock you into one set interest for some years if you want the security of always knowing what you're paying.
24.) Credit booster loans.
There are many boosters or credit-builder loan types out there for people just starting if you need a hand getting loan approval.
25.) Get KiwiSaver.
While KiwiSaver doesn't directly impact your credit score, having one means you can take out a smaller loan to begin with.
26.) Keep secure online.
If scammers or hackers can access your details, they can ruin your score and sell all your financial information online. Always password protects your accounts, with two-factor authentication if you can.
27.) Keep a sensible credit mix.
Two big a mix can be harmful if you're not ready, but a healthy combination of accounts that you're actively building towards helps. The average person may have an auto loan, mortgage and two credit cards on the go.
28.) Take advantage of a reasonable rate.
But be aware of the hidden caches. If a home loan advertises the first year at a fixed rate, calculate beyond that first year (the average home loan lasts around 30 years). That's why the low rates up front — they've got you for a long time after.
29.) Timing is everything.
This is particularly true with mortgages. Even if you can put down a 5% deposit, it doesn't always mean you can afford the rates. Sometimes waiting it out can be critical because more considerable deposits can land you better rates.
30.) Keep an eye on your score.
Make sure to check on your score regularly, at least once a month, to know how it's progressing. You can do this through Yonda.
There are many easy ways to increase your credit score, from simply paying on time to using the right amount of credit to show providers that you're good with money.
While our 30 tips might seem a lot, you can always work your way through them at your own pace, deciding what works best for you and getting a little better each time.