How Do Credit Scores Work in New Zealand? Understanding a Credit Check

Looking to understand how a credit check really works and how your credit score is rated? Learn all you need to know in this simple guide…

Are you in need of some money and you aren’t sure if you have the right credit score? If so, you need to learn and understand how credit scores work.

A bad credit score would mean you have to pay a higher interest for loans as opposed to a person with a better credit score. But, how?

Before any financial institution lends money to businesses or individuals, they have to check their credit score. Credit check includes any past bills or mortgage payments that a person skipped. This bill generates a negative impact on a person’s financial plans in the future.

We all have different scores, which gives everyone different financial ratings and abilities to achieve our dreams. Now that you understand what credit rating does, this blog will help you understand the impacts of credit score in New Zealand.

Who Checks Credit History?

Whenever you apply for credit, lenders get an opportunity to do a background check. When you request services from power companies and phones on credit, they may also check your credit history before offering the services.

There are organisations that collect and sells credit information to business who desire to know individuals credit standings. Thus, for your loan to be approved, the lender will look at your ratings before making the commitment to give or deny you the loan. The higher your credit numbers, the higher your chances of getting a better deal.

How to Check Your Score

We all have an opportunity to learn about our score on request at no cost. But, if you wish to get your report within a short period, then you will need to pay a small fee. You can contact agents and request for the report with regular application.

The best thing is that you can do all this while at the comfort of your home.

How to Build Your Credit Score

About one-third of your credit score is determined by payment history. Paying your bills on time is essential if you’re looking to improve your score. So, if paying your bills often slips off your mind, it’s essential to set up automatic payments through the bank.

This way, you will not have to worry about pending bills once you deplete your salary. Additionally, lenders are interested in your usage of credit lines and cards. When you max out on your credit lines, lenders tend to think you have gotten on the financial edge, hence, deny you money.

In building credit history, keeping your revolving accounts and credit cards open is a convenient move. Closing old accounts might look easy when applying for a loan. But, when the lenders run a background check on your history, this will limit your chances of getting what you are worth.

Unpaid court fines find their way in your report when your credit check is done. Although they may have nothing to do with your credit standings, unpaid fines may limit your possibilities of getting credit. Government fines also may limit the amount you get in case of lenders opt to give you a chance.

Identity theft is another major effect of credit from potential givers. In case a person steals your identity and deliberately defaults to pay for a loan taken, ensure to notify those in charge. Before the credit taken affects your financial credibility, reporting the case to credit reporters might save your credit expectations.

The reporters will place a fraud alert on your name and freeze the credit report. This, therefore, will ensure that you are able to continue with your clean credit reports without looking over your shoulder.

Bad Score Effects

Apart from missing an opportunity to get loans from prospective vendors, a bad score affects your financial planning. With a bad report, it’s difficult for you to get services and pay later from service providers. Also, a bad score makes it difficult for lenders and banks to trust you with any financial responsibility.

However, you can still access some loans such as soft loans, secured loans and credit union loans among others. These are only offered by licensed financial institutions.

What’s On the Credit Check Report?

A credit report contains a lot of information that makes your credit. Any payment you make, and the money you receive all adds up in developing your financial report. Any default payments you have also made up in your credit records.

Thus, any payments that are overdue with over 30 days gets a direct entry to your report. Additionally, if the lender had to take legal steps to recover the overdue payments, that particular default generates a bad report.

The bad news is when default report enters in your score, it affects your score for up to five years even after paying everything in full. Any financial step you take will always be pulled back by that one report that you did not honour in the past.

Potential lenders also look at your financial files to see how much you have borrowed. Through the files, they also observe how regular you are in paying your debts. Through checking your report, vendors will have detailed information on who you are.

Paying your utility bills on time also guarantees to improve your score significantly.

When things get tough and you are unable to pay your debts, it’s possible to apply for a summary installment order. This helps you to repay your debt through regular installments without legal action threats around your neck. So, lenders will allow you to make flexible payments where you are comfortable.

Yet, for you to get this deal, the money in question must not be above 40,000 dollars. Additionally, if you have zero means of repaying the debt, you can apply for NAP (No Asset Procedure). Lastly, you are allowed by law to fill bankruptcy report with credit reporters.

Credit Check Influences Your Financial Expectations Either Negatively or Positively

Although the New Zealand government does not hold on these reports to determine your credibility, private lenders have their way of blacklisting people. Getting blacklisted by lenders also limits your chances of getting a better score in case you need a loan service in the future.

So, instead of waiting till it’s too late, why not start efforts to correct your score early. If you can’t go about it by yourself, we are here to help.

Check out our page for professional financial advice.

 

 

Categories: Advice

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