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Your credit report guide
Want to be in a better position the next time you apply for credit? Learn how your credit report and credit score affects your chances of approval.
Your credit report contains details of your credit history that lenders and finance providers access when you apply for specific products and services. It is a collection of information about your open credit accounts, repayment habits and payment defaults obtained from lenders, banks, mortgage providers and utility companies. Lenders use the financial information in your file to assess your ability to repay debt and manage loans.
It’s essential you understand what your credit report contains and what lenders record there, so the next time you apply for credit you are in the best possible position to receive approval.
What information is in my credit report?
Essentially, your credit report is a historical summary of all the loans, accounts and other lines of credit you have used in the past five years, including ones you may have applied for but were not granted.
In the past, credit reports only showed negative behaviour. Following the introduction of comprehensive credit reporting in 2012, credit providers have been able to share more detailed information such as a history of making payments on time. This is beneficial to you as a borrower, as a future lender can see that you are able to manage your finances.
Here are the details contained in a credit report:
- Personal information. Your credit file lists your name, date of birth, current address, where you work, identification details and gender.
- Credit score. A score of between 1 and 1000 is allocated to you depending on your credit history.
- Defaults. Defaults provide details on overdue debt you might have, payments you’ve missed on loans and utility bills, plus other serious credit infringements.
- Accounts. Any lines of credit that you have including credit cards, overdrafts, store finance, phone contracts or personal loans. Your report shows the account open and close dates, credit limit, your monthly repayment history and details of any overdue accounts.
- Enquiries. When a credit provider or authorised agent accesses your credit report, information about the enquiry is recorded. These details include credit applications made in the last five years whether you receive approval or not.
- Information that is public record. This section contains any information that is public record, including bankruptcy notes, court writs and judgments, personal insolvency agreements, directorship or proprietorship information.
- Commercial credit information. Details of credit enquiries you may make for commercial purposes and overdue commercial credit accounts.
- Joint applicants. If you apply for any loans or credit cards as a joint borrower, lenders list this on your report.
A healthy credit report is signalled by the lack of black marks, like late payments and credit defaults. That said, a blank credit report isn’t necessarily reassuring to lenders. Most lenders are more likely to prefer someone with a proven record of responsibly maintaining open accounts, over someone with no history of borrowing. The characteristics of a good credit report include established credit accounts with low balances, regular repayments made on or before the due date and a clean legal record.
While your credit report does contain a lot of information about your credit history, it does not show details of your income, savings, criminal record, marital status, speeding tickets, ethnicity or medical history.
Why is my credit report important?
Your credit history plays an important role in being granted approval for products such as mortgages, car loans and credit cards.
Whenever you apply for any sort of credit, even mobile phone or broadband plans, the details of your application are sent to credit reporting companies, who maintain and update your credit report. This report is then made available to financial institutions and credit lenders who may consider granting future loan applications, based on your previous history of borrowing and repayment.
In New Zealand, it is common for financial institutions to privately determine credit ratings when you apply for any form of credit, including loans, credit cards and credit limit increases. They may never give you detailed information about this “internal” credit rating, but a good or bad credit rating can influence the outcome of your application. Some lenders may assess the amount of money you can safely borrow based on their own system of calculation as well as looking at your credit report.
If your record tracks a poor pattern of debt repayment, you will naturally be considered a high credit risk and may be refused credit or offered a higher interest rate.
Understanding your credit score
Your credit score is a number between 1 and 1000 that shows lenders your ability to handle credit and make regular payments.
A good credit score is usually between 500 and 850, but the numbers aren’t as clear-cut as you might think. Even though credit bureaus collect the same information to determine your credit score, there’s enough variance in their algorithms to result in different scores.
The three major New Zealand credit bureaus — Equifax, Centrix and illion (formerly Dun & Bradstreet) — each use their own scoring systems. How each company calculates your credit score remains a trade secret, but your payment history, available lines of credit, the types of credit you have, credit inquiries you’ve made and the years you’ve had ongoing credit contribute to the number.
This means that applying for multiple loans at once can lower your credit score by a few points, which could impact the interest rate you’re quoted on future loan applications. In order to maintain a good credit score, keep your inquiries to a minimum by applying for loans with preapproval and always make your payments on time for the full amount due.
While credit scores aren’t everything, they can significantly affect many areas of borrowing, including the interest rate you’re offered and the total amount you can borrow.
Lenders place a lot of emphasis on your credit score because it’s a reflection of your ability to meet your financial obligations. Higher scores mean higher reliability, which means less risk for the lender. If you’re less of a risk, your interest rates aren’t going to be as high, and you’re going to have a better chance of getting a less expensive loan.
How long is information held on my credit report?
Your credit report contains both positive and negative listings. However, it is the negative listings, such as bankruptcies and overdue accounts, that impact your ability to access credit. Use the following as a guide to how long listings appear on record:
|Type of listing||Length of time it’s listed (years)||Description|
|Credit application||5||Any application you make for credit is listed here, eg credit cards, loans, utilities.|
|Inquiries||5||Applications made to utility companies, banks or lenders for services or credit products (whether you receive approval or not).|
|Overdue accounts listed as a payment default||5||Overdue accounts of $100 or more that is 30 days or more overdue. Collection information, default history, summary instalment orders and judgment records.|
|District and High Court judgements||5||Five years from the date of judgement.|
|Serious credit infringements||5||From the date of the report.|
|Single bankruptcy||4||If you enter into bankruptcy it will be removed from your file four years from the date you receive a discharge notice. Also includes a single record of entry into No Asset Procedure|
|Multiple insolvencies||May be held indefinitely|
|Repayment history||Up to 2|
Where can I check my credit report?
There are services in New Zealand that provide credit scoring, including independent businesses such as Credit Simple, CRCs like illion, Equifax and Centrix which offer credit ratings, with their credit report packages.
While the credit scores you obtain from these services will vary, they can still be useful in giving you a general idea of the types of loans and credit cards you can get. When you have obtained your credit score with Credit Simple, they provide a list of offers, for example, credit cards and personal loans for you to consider.
The range of details in the report may vary between these companies, so it can be useful to request free copies of your reports from all of them to see exactly what is there and to ensure that they are all correct. You should contact the credit reporting company as soon as possible if you find any mistakes in your credit history.
Rest assured that the details on your credit history are protected by the Privacy Act (1993) such that only you and authorised agents can access the information.
What should I check in my credit file?
When you order your credit file, you should examine the following details:
- Personal information. Ensure all your details are correct, as this limits the chance of identity theft or receiving a rejection for credit because of a misspelled first name.
- Incorrect defaults. Credit reporting agencies or lenders might: List a default incorrectly into your file; record a default twice, or list a default for an account you paid on time. If you find an incorrect default, talk to the credit reporting bureau first, then if that doesn’t rectify it, you should contact the credit provider.
How can I deal with incorrect listings?
- Contact the credit reporting bureau first. It may be able to remove the incorrect listing or contact the credit provider on your behalf, and they will remove it.
- Contact the credit provider that listed it and explain why it is incorrect. The credit provider should have a dispute resolution team or process in place.
- Contact the Privacy Commissioner. Contacting the Commissioner should be your last stop if the provider’s dispute resolution scheme fails to remedy the issue. Although there is no specific time frame to make a complaint with the Privacy Commissioner, they may not take up your case if, “Investigation of the complaint would be no longer practicable or desirable”. Contact them on 0800 803 909, if you are unsure.
How can I improve my credit score?
- Establish healthy accounts. As long as you regularly pay your bill on time, having a mobile or internet plan, electricity account or Sky service in your name is a good way to establish proof that you are a responsible borrower.
- Make punctual payments. Paying your bills on time sends good signals to lenders and demonstrates your ability to make timely repayments.
- Stay free of debt. Avoiding debt will also demonstrate your ability to repay your balances and could position you as a low-risk applicant. Lenders may be less inclined to approve your application if you are already in debt or your credit history shows you have trouble managing your funds.
- Demonstrating job stability. Staying in the same job for a few years, rather than frequently hopping between employment, demonstrates responsibility to potential lenders, as well as your ability to repay.
- Living in the same place. Long-term rental or homeownership also demonstrates responsibility and gives lenders the comfort of knowing you are not likely to default on your payments.
- Make infrequent credit card applications. Each credit card application you make shows on your credit report, regardless of whether it is approved. Having numerous credit card applications on your report, can also send negative signals regarding your eligibility and ability to manage your funds.
- Pay off open balances. It’s important to close your balances by paying them off before taking out another form of credit, whether that’s a new card or a loan. This will improve your credit and show lenders you’re able to fulfil your financial obligations.
- Keep open balances low. Once you’ve paid down your balances, try to keep them low. Staying below 30% is the advised threshold by many experts.
- Have some open balances. Your credit utilisation ratio — the amount of credit you have open versus the amount you are currently using — looks better when you’re using less than 30% of your open credit.
- Avoid opening new accounts. Opening new accounts before you improve your credit score means you’re opening accounts with potentially weaker terms.
- Cancel unused credit cards. Cancel any credit cards you don’t use, including store cards, to reduce your amount of existing credit. If any cards have a balance, consider a balance transfer credit card to save on interest.
What can cause a bad credit score?
The following can result in a negative credit score:
- Numerous credit accounts and applications. Having too many loans in your name isn’t a good look because it brings into question your ability to manage and repay all of them at once. All loan applications stay on record for five years.
- Credit enquiries. Every time you apply for credit, the lender makes enquiries into your credit history. These enquiries are recorded on your credit report and going forward, leave a trail of credit enquiries that other future lenders will not look favourably upon. These stay on record for five years.
- Late or skipped payments. Poor payment habits can be a warning sign to potential lenders, so it is always better to make repayments on time, even if it is a small or partial amount. It is also important to remember that loan repayment history stays on your record for two years.
- Credit defaults. This happens when a lender takes action to retrieve an outstanding payment, and it stays on your record for five years.
- Court writs and summons. These legal blemishes stay on your record for five years.
- Serious credit infringement or clearouts. If you fail to make payment and the creditor is unable to contact you for more than six months, a serious credit infringement will be marked on your record for five years.
- Bankruptcy and insolvency. These will stay on your report for four years after the start of insolvency. If you are subject to multiple bankruptcy judgements, this information may remain on your credit rating indefinitely.
Is a good credit score enough to get a loan?
Beyond your credit, lenders want to see that you have an ability to repay your loan. They will look at your overall financial situation including your income and outstanding debts.
When you apply for a loan, the lender will calculate your debt-to-income ratio. This is your income divided by the number of debt repayments you make each month. If you have multiple credit card payments, a mortgage and a car payment, your debt-to-income ratio will be high. Since so much of your income goes toward debt already, a lender is less likely to approve your application.
On the other hand, if you only have a mortgage and a single credit card payment each month, your debt-to-income ratio will be low. Lenders will view you as a better applicant because you have more disposable income.
Most lenders prefer applicants with a debt-to-income ratio of 35% or less. If you’ve calculated yours and are above this number, hold back on applying for a loan and work on paying off your existing debt instead.
What are my options if I have a bad credit history?
If you find that you have bad credit, you may be able to improve it by practising responsible borrowing habits, such as making payments on time. It could be worth taking stock of all your credit accounts or consolidating debts so it becomes easier to pay them off, which will improve your credit score in the long run.
You can take comfort knowing that time is on your side in this scenario, because all of your black marks will be erased from the report in five years if you start developing responsible repayment habits today. If you can’t wait that long and need credit, there are personal loans and credit cards that cater to customers with bad credit ratings.
While knowing your credit score is useful to improve your credit history or when applying for a loan, it is merely an indicator of whether you will receive the credit you want. However, you should also consider other eligibility requirements, such as your present employment, total income and current assets before you apply for your next line of credit.
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