Your credit score is more important than you might think. Not only when it comes to applying for a mortgage or personal loan, but even when opening new bank accounts, utilities, or applying for insurance or car finance. How you spend and repay your debt directly affects your credit score. And every time you apply for credit, lenders use your credit score to decide whether or not to lend to you. Here’s how to improve your credit score.
1. Pay your bills on time
In New Zealand, both positive and negative repayment history impacts your credit score. And, while each credit reporting bureau uses its own set of algorithms to determine what that score is, all operate under the same premise: the higher the score, the better.
The fact is a missed repayment can have a long-lasting negative impact on your ability to access further credit or you may even be penalized with higher interest rates. To avoid missing repayments – and a potential black mark on your credit report – set up a direct debit to repay your debt in full each month, or at the very least, the minimum balance owing.
If you know you’re going to struggle to keep up with minimum payments because of multiple debt commitments, it’s vital you contact your lender to work out a repayment schedule before you miss any repayments. While this may not stop your credit score decreasing, it’s better to have managed your repayments than have a default on your credit file.
2. Keep your finances separate
If you’re flatting and sharing the cost of utilities, it’s a good idea to leave your name off the account and keep your finances separate from your flat mates. Similarly, if you’re moving out of a flat or you’ve recently ended a relationship, cancel any joint agreements or accounts, and remove yourself from all bills and obligations. That way if any of those payments are late or missed, your credit score won’t take a knock!
3. Only apply for credit when you really need to
Multiple credit applications can damage your credit score. Every time you apply for credit, an entry is listed on your credit report. Too many credit applications in too short a time can signal a red flag to lenders, making it look like you’re desperate for credit.
If you know you’re going to need to apply for credit, be sure to space out your applications so you’re not applying for multiple new accounts at the same time. What’s more, if your application is turned down, wait before re-applying or you could risk damaging your credit score further with multiple credit checks by lenders.
4. Rebuild a good credit history
Using a credit card and repaying your balance in full and on time every month is a simple way to begin rebuilding a good credit history. Previous defaults could make it harder to apply for a credit card, but some credits cards – like those issued by GEM Finance or QMastercard – have lower eligibility criteria but higher interest rates. Too much existing credit isn’t a good thing though, so cancel any credit or store cards you’re not actively using.
5. Avoid pay day loans and quick finance options
While it’s true that a good credit history relies on you applying for and repaying credit on time, there are some loans that can actually harm your credit score. Pay day loans and quick finance deals may signal to lenders – especially when it comes to mortgage finance – that the borrower doesn’t have a good handle on finances, so avoid these types of loans if you can.
6. Check your credit report regularly
Before you apply for any new credit, it’s a good idea to request a free credit report. That way you’ll have a good idea of your credit score and have a chance to check for any inconsistencies or errors.
If you do find something that isn’t correct – a debt that doesn’t belong to you or that you’ve already repaid - it’s important you contact the credit provider as soon as possible to have the error amended. Also check that your latest address is correct so that your credit history is accurate.
Home ownership dreams
If you have defaults in the past, don’t despair; it doesn’t mean the end of your home ownership dreams. There may still be options available to you, or you may need to do some work to improve your credit score and apply at a later stage.
Either way, by working with a Mortgage Express adviser, we can help you find a financial solution for bad credit history or a plan to get you into your own home in the future. Get in touch with our team today to talk through your options for financing a mortgage with a history of bad credit or poor credit score.
While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken by Mortgage Express Limited for any errors or omissions. This publication does not constitute personalised financial advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication