23 February 2021 | By Lending People
Take an in-depth look at credit reporting.
If you have ever applied for finance, rented property, connected power, or signed up to a mobile plan, companies that provided these services likely checked your credit report. Let's take an in-depth look at what information is on your credit report, how we might use that information, and what it means for you.
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What is a credit report?
A credit report is a summary of how you have managed any credit given to you. Remember those old school report cards, the ones that rated you on each of your subjects? It's like that but for your finances.
Your credit report may be looked at more often than you think. When you apply for credit, those companies will typically use your credit reports as part of their decision-making process to extend credit and at what interest rate. Employers and landlords may also obtain your credit report to help them decide whether to offer you a job or let you rent a house. When you set up a power account or a mobile phone, the companies providing these services may also review your credit report.
What's on a credit report?
Your credit report includes:
- A Summary about your identity: the summary includes your name, any aliases, address, and identification like your drivers' licence.
- A list of each time your credit report has been checked. Credit checks remain on your credit report for four years.
- Payment history for your loans. Payment history remains on your credit report for two years.
- Defaults on loans. These remain on your credit report for four years.
- Your credit score. This score is usually between 0 and 1000. Credit reporting companies calculate this score based on all the credit information they have collected about you. The higher the score, the more likely it is that your loan application will be approved. Your credit score changes over time as the information in your credit report changes.
What is a credit check?
A credit check happens each time a company enquires with the credit reporting agency about your report. These enquiries appear on your report, and there are two types:
- The first is called a Quotation Enquiry. This enquiry is recorded on your credit report but does not affect your credit score.
- The second is called a Credit Enquiry. This enquiry is recorded on your credit report and does affect your credit score.
Since October 1st, 2019, companies that offer risk-based pricing (e.g. varying interest rates depending on your creditworthiness) must use a Quotation Enquiry. Doing this allows customers to shop around for the best terms without decreasing their credit score.
A Quotation Enquiry will turn into a Credit Enquiry only if you proceed with the loan. Both remain on file for four years.
As part of our online application process, Lending People may enquire about your creditworthiness by requesting your credit report. If we do, we will use a Quotation Enquiry to ensure that your credit score is not affected.
Where can i request a copy of my credit report?
What is a good credit score?
Your credit score, otherwise known as your credit rating, usually ranges from 0 to 1,000. The higher the score, the better.
A Credit score of 1,000. Mary Poppins.
If you scored 1,000, you're practically perfect in every way.
You're probably over 50, have spent your whole life making prudent credit applications, limiting unnecessary ones, and floated down from the sky on an umbrella.
Banks and finance companies will roll out the red carpet for you every time you want to take out a loan. Interest rates offered to you will be supercalifragilisticexpialidocious.
A Credit score of 800 - 999. Amazing.
If you scored in this range, you're in the very top percentile of all New Zealanders.
You have a strong credit history that you have built up over a long time. Your repayment history will be perfect, and you will have only applied for credit occasionally and only for important reasons.
Lenders will usually approve your application if you can afford the repayments. The interest rates offered to you will be incredibly attractive.
A Credit Score of 700 - 799. Great.
If you scored in this range, your credit score is quite a bit above average.
If you apply for credit, you will generally be approved if you can support the repayments. The interest rates offered to you will look good.
A Credit Score of 500 - 699. A Typical kiwi.
The average credit score in New Zealand is 529, so if you scored in this range, it means you probably have not had any issues with previous credit.
Interest rates offered to you will likely be the same as the rates offered to your mates.
Avoiding late payments and limiting the number of loan applications you make will all help to increase your score.
A Credit Score of 300 - 499. Ok.
This score is below average, but your report typically won't show any defaults. You may be younger and have not had time to build up a strong credit history, or you have been submitting many credit applications.
Your application may be approved, but the interest rates offered will be higher than average. If you have a partner with a higher score, you could look to apply together, which may result in better terms.
If you are more disciplined, with time and patience, your score will increase.
A Credit Score of 0 - 299. You need a spoonful of sugar.
This score indicates you probably have defaults, have made a tremendous amount of credit applications, or have a poor repayment history.
A score in this range will prohibit your choice of lenders. You will need security, and most will charge a higher interest rate to manage risk. It would help if you tried to avoid borrowing when your score is this low unless necessary, like buying a car to get to work.
Stop making finance applications and wait until any defaults disappear from your record, which can take up to 4 years.