A handy guide to credit ratings
CREDIT RATINGS COME INTO play when someone looks at buying a house, a car, or another big ticket item. Banks and lenders will check your rating before providing a mortgage or loan.
Credit ratings give lenders an indication of how good or bad someone is with money. The ratings are up to a score of 1000 points, with 1000 being the top rating.
Most people, however are in the 500 to 800 range.
How do credit ratings affect people's finances?
Whenever you look to borrow money, the lender will look at your credit rating to see how likely they are to get their money back. According to Centrix, if a credit rating falls below 500 points the applicant is likely to be rejected for most credit card or loan facilities.
You will need to have a driving licence or passport to verify your identity. The checks are free.
A credit report will include any payment defaults recorded against your name. A default is where a payment has been overdue for more than 30 days, and the lender has taken steps to recover the outstanding amount.
Payment of power and phone bills may also be included. But credit ratings can go further and be considered if you're applying for a job, because that can also indicate a person's character.
A prospective landlord or insurer might also check your credit history.
How do you avoid a bad credit rating?
Essentially, if you make your payments on time you will have a good credit rating.
You will also want to try to avoid making too many applications, because every time you make inquiries about a loan, or if you apply to switch power companies, those companies run a credit check. And every time that happens your rating is affected.
If you believe there’s a mistake on your credit report, contact the credit reporting agency to query it and potentially have it corrected.
Where can people go to check their credit rating?
The main ones for New Zealand are Centrix, Equifax and illion.
Every company in New Zealand scores individuals differently when it comes to assessments and use different credit report agencies.
Lenders don’t share details of how they assess you as this could risk individuals ‘gaming’ the system on future applications. When you apply, you will only hear the final decision, and not the evidence used to make the decision.
Read more about credit ratings here.