Let’s talk about credit

If you’re looking to buy a new house, chances are you’re going to need to borrow money from someone. Houses, credit, borrowing, lending -- it can all be very overwhelming. Luckily, we’re here to help you through all the hassle. This week, it’s time to talk about credit.

Credit report, credit history, credit score – what does this all mean?

Alright, let’s just break everything down here. Before we can proceed to the nitty gritty, let’s get all the jargon out of the way:

  • Credit history – this is a list of all your credit-related transactions. This can include transactions involving loans, credit cards, mortgages and so forth.

  • Credit report – this is a summary of your credit history, produced by a credit reporting agency. There are three main agencies in New Zealand: Equifax, Dun and Bradstreet, and Centrix.

  • Credit score – this is an index between 1 and 1000, and it is a rough enumeration of your credit report. Your score essentially gives lenders an idea of the risk they’ll take on when lending to you. Credit Simple is the only agency in New Zealand which provides credit scores for free.


If this is all a bit confusing, don’t worry -- these terms essentially refer to the same thing: your financial habits as they relate to credit.

Why is my credit history important?

Say you’re looking to get a mortgage from the bank. You’ll make an application, and as part of the approval process, the bank will refer to a credit reporting agency for a credit report on you. They might refer to one or even all agencies in order to get a good picture of your credit history. The impression that the lender gleans from your credit report will be influential in their decision to lend money to you. This is true for pretty much any potential lender: private lenders, banks, power companies, insurers and even phone companies might look into your credit history, because they want to make sure that you’re capable of making the payments you’ve committed to.

So, the cleaner your credit report and the higher your credit score, the better the position you’ll be in to get good borrowing terms and interest rates.

What information is recorded on my credit report?

Traditionally, your credit report would consist of unfavourable occurrences in your financial history, including, but not limited to missing bills, mortgage repayments and car repayments. It is a record of how much money you’ve borrowed and any outstanding regular repayments. Your report will also include payment defaults – a default being where you have been overdue for a payment for over 30 days and the lender has sought recompense. Even if you end up paying for the full amount, defaults can stay on your history for five years.

In recent years, many lenders have adopted the practice of positive reporting, where favourable actions such as on-time payments, and times where you made extra payments/overpayments are included in your report.

Who has my credit information?

In New Zealand, there are three credit reporters: Equifax, Dun and Bradstreet and Centrix. Your potential lender will refer to any number of these agencies to understand your credit tendencies. Though each agency undertakes a different process when they produce your report, your impression as a borrower will be more or less consistent between them.

How do I get my credit report?

You are legally entitled to be provided information about your credit history from credit reporters for no charge. You need only contact any of the aforementioned agencies to receive your credit report.


Your credit report isn’t everything

When you’re seeking credit, your credit report isn’t the end-all, be-all. Your application can make a critical difference. The information on your application includes income, expenses and properties that you may own, which is not included on your credit report.  Your application therefore plays a key role in your chances of securing credit.


So how do I improve my credit report?

It should be evident by now that maintaining a good credit history can only make things easier for yourself. So how do you ensure that happens?

  • Keep your report up to date – If you believe there are mistakes in your credit report, contact the credit reporting agency immediately to get it sorted out. If you do spot a mistake, it might be good to verify this with other credit reporting agencies, since they all have slightly different methods of assessing your credit history.

  • Mistakes you make now can come back to bite you in the future – make sure you always make your credit repayments on time.

  • Get credit only when you need it – every time you apply for credit, it is recorded on your credit history. So if you apply for a bunch of credit cards in a short space of time, lenders will read this as someone who is desperately looking for credit – not a good look. Therefore, when you apply, be absolutely sure that you need it.

  • Pay off your debts – lenders don’t like the look of multiple debts to your name. In their eyes, it decreases the chance that you’ll repay them if they lend you money.

  • Never default on payments – this will stay on your credit report for five years, and is a huge red flag for potential lenders. There is little you can do other than wait for it to expire, even if you’ve paid the full amount after the fact.