COVID-19 has impacted not only the way we work, go to school or socialize; for many, it’s had a significant financial impact too. Job loss or reduced hours has meant more people have to rely on credit or even miss repayments on financial commitments due to financial strain. While your health and wellbeing are understandably top of mind right now, it’s just as important you keep your credit score in the best possible shape. Here’s why.
Good vs. Bad Credit Score
In New Zealand, there are three main credit reporting agencies which collect information from credit providers like banks, credit unions, store credit issuers and payday lenders, phone and utility providers. This information along with public record information is stored in your credit report and assigned a credit score. Together, these two make up your credit profile.
Every time you apply for credit or a utility, make a repayment or miss a repayment, this information is added to your credit report and your credit score is re-calculated accordingly. It makes sense then that the higher your credit score the better, because it shows lenders that you have a reliable borrowing and repayment track record.
When you apply for credit, lenders will access your credit profile and use the information in your credit report along with your credit score to determine whether or not to approve your credit application.
A bad credit score could mean some lenders are reluctant to lend to you, or you may be charged a higher interest rate or offered less flexible terms, because lenders perceive those with a bad credit score as a credit risk.
Protect Your Credit Score
Accessing affordable credit depends heavily on your credit score, so it’s important you maintain a good credit score. A bad credit score could seriously limit your options. There are a few ways you can protect your credit score:
- Avoid missing repayments by paying your bills, even if you only pay the minimum balance. Positive repayment information is also stored in your credit report and positively impacts your credit score.
- Get help early if you’re struggling to make your repayments – contact your lender or credit provider to find out what your options are if you’re unable to pay on time or in full.
- Limit the number of new applications for credit or loan products you make unless you’re confident your application will be successful and only if you actually need the loan. Multiple credit applications can negatively impact your credit score.
- Lower your credit limit – or reduce the number of credit cards you hold - to avoid spending more than you can afford to repay.
- Regularly check your credit report to ensure the information held in there is correct – you can also query inconsistencies on your credit report by contacting one of the credit reporting agencies.
If you’re facing serious financial hardship because of COVID-19, there is still help available Talk to your lender or get in touch with a Mortgage Express adviser to find out how a mortgage deferral, refinancing or debt consolidation could help you get back on track again.
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.
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