Getting an excellent credit score depends on your credit history. But how do you do that if you’re just getting started? Or even what a credit score is?
In short, credit scores are numbers that many different people, including employers, banks and credit or ‘financial’ providers, use to determine your eligibility for loans, credit cards or even employment. The range you can score in is between 0-1000, with around 500-600 being a reasonably healthy score.
The next thing to determine is your financial goals, based on your life situation. Perhaps you’ve just moved out of home, or you’re about to enter the workforce for the first time. Or maybe you’re looking for other ways to improve your credit history fast. Whatever the reason, following these tips, will bring your score up to speed.
1.) Pay your bills on time.
In New Zealand, there’s no minimum age for credit reporting. This means that if you have any credit under your name, you’ll likely have a credit score and a history with a credit reporting agency.
When you start taking in credit, you’ll also begin repayments, which are how you build your score up over time. The higher you build your score, the more access you can get to more significant amounts for things like home loans. So it’s essential to make sure you repay all your bills on time. Any missed payments show up on your credit file, which lowers your score and harms your chances of accessing credit in future.
2.) Get your name on a utility bill.
If you haven’t had any credit before, start small and build slowly. For example, if you’ve just moved out of home, make sure your name is on one of the utility bills and make sure that the bill is paid on time every month. That will help you build a good credit score.
3.) Build slowly.
In New Zealand, student loans don’t form part of a credit score, and they’re not on your credit file, but if you’ve just left University, it’s a good idea to start building a credit history by having some credit in your name. Talk to your bank about an overdraft or credit card — but keep the limit low to start with. The aim here is to demonstrate that you’re responsible with credit.
4.) Don’t make too many credit applications.
It doesn’t matter what stage of life you’re at — too many credit applications can indicate financial stress. If you’re in the market for a loan that’s risk-based (interest rate depends on how risky you are), make sure to ask the lender for a quotation only enquiry. This doesn’t leave a mark on your credit file.
5.) Make sure you deal with any unpaid debts.
Life can throw a curveball no matter how well we plan and how financially responsible we are. Whether it’s an overlooked bill from your old student flat or a change in circumstances that are impacting your ability to make repayments, it’s best to deal with it head-on. Contacting lenders to deal with unpaid debts or restructure debt means it’s less likely to affect your credit score.
We’d recommend investing some time a few times each year to check in on your credit health by requesting your credit file and your credit score. Together with sound budgeting and financial planning, you’ll be on track for a financially fit future.
When starting on your journey to better credit, the most important thing you can do is honour your bills by paying them and easing off on too many credit applications.