What is a credit score?
The credit bureaus keep a report on you: your credit cards, loans, buy now pay later, phone and power accounts, and whether you’ve paid on time. Each turns it into a score from 0 to 1,000. Lenders use your report and score to decide whether to lend to you, and how much.
Under comprehensive credit reporting, reports show good behaviour too, such as on-time repayments, not just problems.
What affects your score
- Repayment history: each month you pay on time helps; late payments show up.
- Defaults: overdue debts can be listed for up to five years.
- Applications: lots of credit applications in a short time can lower your score.
- The type and amount of credit you hold.
Your card limits count, even if you owe nothing
When you apply for a home loan, lenders check you can afford all your credit, and treat your whole credit card limit as if you could use it. The Reserve Bank’s debt-to-income limit counts cards at their limit too.
Example: on a $100,000 income, borrowing over 6 times income ($600,000) is limited. A $10,000 card limit you never use takes that down to $590,000. Lower limits or close cards you don’t need before applying. See deposit and debt-to-income rules.
How to raise your score
- Never miss a repayment. Set up direct debits for at least the minimum.
- Pay power, phone and broadband bills on time too: they can appear on your report.
- Apply for credit only when you need it.
- Check your reports for mistakes and ask the bureau to correct them.
Check yours for free
You can ask Centrix, Equifax and Experian for your credit report free. They must send it within 10 working days; if you want it within 3 working days, they can charge up to $10. Some free services also show your score. The three bureaus don’t always hold the same information, so check all three.
If something’s wrong
Ask the bureau to correct any mistake, such as a debt that isn’t yours. If it won’t fix it, you can complain to the Privacy Commissioner, who oversees the Credit Reporting Privacy Code. If someone has used your details to apply for credit, ask all three bureaus to put a suppression on your report, so no one can get credit in your name while you sort it out.
Starting from nothing
A low-limit credit card, or a power or phone account in your name, always paid on time, builds a history.
For a step-by-step plan, see how to build a credit history from scratch.