13 Feb How is Your Credit Calculated in New Zealand?
The truth about credit scores is that we all know we have one but few of us know how exactly we got it. Sure, we know when we miss bills or default on loans, our credit score goes down, and when we successfully pay debts, it goes up. But what’s the calculus, what’s included, and who’s calling the shots? Here, we’ve decoded the process a bit for you, so you can feel more confident about your credit and what you can do to change it.
All your transactions count
Your credit is based on a comprehensive history of all your transactions that have to do with credit – it’s all being tracked by credit agencies. This, of course, includes your credit card, loan and mortgage history, but also includes contracts you might have signed up for that involve paying bills – think phone, internet, power and the likes – and things like your bank overdrafts. Basically, if you were ever provided with a service or a loan and paid for it later, that counts.
The who’s who of credit
Your first question might be – who is it exactly that is collecting this information about you? First of all, the banks, phone providers and other companies providing you with credit-based services will keep your data. Then, there are three NZ finance agencies who collect and collate your data – Equifax, Centrix and Illion, and one agency – Credit Simple – who assigns you a score based on this information. There is no national database of credit scores or blacklist of people with bad credit – it’s all dependent on which of these agencies you ask.
Demystifying the lingo
You could be forgiven for not knowing exactly what your ‘credit’ is. In fact, there are a number of terms ‘credit’ could be referring to, and it pays to know the difference. First up, your credit history is the comprehensive list of all the credit-related transactions you’ve made. It narrows in from there on out – a ‘credit report’ is a summary of the key info from your credit history that a company produces, while a ‘credit score’ is boiled down even further into a number between one and 1000. All of these are sometimes referred to simply as ‘credit’, so having an expert around to help you can be a huge asset to navigating the system.
So what’s the equation?
The tough part about all this is that the general public can’t know the exact formulae used by these companies to produce reports and scores on your credit – if it were public knowledge, it might allow people to game the system. What we do know is what data points figure into it – your last five years of credit data, your court history, financial hardship applications, and being chased by debt collections agencies. There’s nothing here to trip you up. If you’ve been a good borrower, it will reflect, and vice versa – and it’s not too late to change. Some companies specialise in bad credit loans, and paying off one of these will improve your credit score.
Finally, it’s noteworthy that multiple enquiries about loans over a short period of time can negatively impact your credit, so it’s best to use a broker.
Do you need financial assistance?
If you need financial help, we could be able to help you out. Max Loans provides a non-judgmental, friendly service to get you back on track – or help you keep on trucking. Talk to us about your circumstances, and we can help you decide the best option for you.
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