A credit check is an anxiety-inducing process, even for those with a spotless credit record. Credit provider runs a credit check to request information relating to your history of debt repayment. This is to determine if you’re likely to repay the loan you’re applying for from them.
Often, the anxiety is caused by not knowing how credit score works and how it’s calculated.
Let’s shed some light on this ‘mystery’ number and learn how to repair it if you have a not so stellar one.
A credit score is a piece of information that helps lenders in assessing the creditworthiness for any type of lending, including business lending. Creditworthiness takes into consideration whether you’re likely to pay your bills on time or repay the loan in full.
To determine your credit score, there are many inputs used, which may include: the amount of money you owe, your payment history, the length of your credit history, the amount you’re looking to borrow, and other credit you have taken on.
In New Zealand, the top credit bureaus, such as Equifax, Milton Graham, and Centrix, collect information to determine your credit score and provide this upon lender’s request. Your permission must be given in order to do so. Through a contract or verbally, this is provided as part of an agreement to the terms and conditions.
Contact a credit bureau and request your personal information to know your score. Check the information for accuracy and make sure no one else has used your identity for their advantage.
You also have to know any negative data on your credit file to address it accordingly. Create a plan to mitigate its future impacts.
It’s a bad thing to have a poor credit score. Late payments on your loan or credit card, a.k.a. defaulting, can cause this negative effect.
If this is the case, contact your lender to inform them that you’re in a financial slump and ask for help . It’s better to be upfront than to miss another repayment.
Don’t lose hope as you can still improve your score.
Aim to get back into a regular payment cycle if you’ve missed your loan repayments before. With repayment history, you can demonstrate you have rehabilitated your credit behaviour. This will show a clear repayment record over time.
Defaults and other negative events does not last. Within five years, defaults will still have a negative impact on your score, but it will diminish. Past credit problems become less relevant as your recent payment patterns go back on track.
Banks aren’t just the sole credit providers. Utility companies, i.e. Telecommunications, are also credit providers, so you have to pay your bills on time.
And that’s the inside facts on credit scores. If you think your score is spiraling down, you can always come back up. The first step is be truthful in assessing your situation and commit to get your finances in order.
If you need help with building credit, MyFi has you covered with the right financial service and resources — customised for you!
Join the MyFi Family and have access to all the financial and budgeting tools you need.
Note: MyFi and other sources of finance are options that should only be used for once off funding requirements.