How to Improve Your Credit Score
In New Zealand, your credit score plays a vital role in your financial well-being. Whether you're applying for a personal loan, a credit card, or looking to buy your first home, your credit score will impact how lenders view your reliability as a borrower.
Your credit score is essentially a numerical summary of your credit history, which helps lenders assess how risky it would be to lend you money. This score is based on your past borrowing behaviour, including whether you pay your bills on time, how much debt you carry, and any defaults or bankruptcies.
A strong credit score is crucial when you are:
- Accessing credit: A higher score means easier access to loans and credit cards with better terms, making it simpler to manage large purchases or unexpected expenses.
- Building financial security: Establishing a good credit score early will set you up for financial success, whether you're looking to buy property, start a business, or fund future investments.
In New Zealand, credit scores range from 0 to 1,000 or 1,200 depending on the credit bureau. A score above 500 is considered average, while a score above 800 is excellent.
How to Improve Your Credit Score
If you're thinking about purchasing a property, here are some practical steps to improve your credit score if it’s a little lower than you’d like:
- Check Your Credit Report Regularly: First, you need to know where you stand. You can request a free credit report from the main credit reporting agencies in New Zealand—Centrix, Equifax, and Illion. Review your report for any errors, outdated information, or suspicious activity that could be dragging down your score. Correcting these mistakes is one of the fastest ways to improve your credit rating.
- Pay Your Bills on Time: Payment history is one of the most significant factors affecting your credit score. Lenders want to see that you have a consistent record of paying bills on time. Whether it's utility bills, credit card payments, or mortgage payments, always aim to pay in full and before the due date. Even small missed payments can have a long-lasting negative impact on your credit score.
- Reduce Credit Card Debt: High credit card balances relative to your credit limit can harm your score. Aim to keep your credit card balances below 30% of your credit limit. If possible, pay off your balance in full each month to avoid interest charges and boost your creditworthiness.
- Limit Applications for New Credit: Each time you apply for credit (such as a new credit card or a loan), a hard inquiry is added to your credit report. Multiple inquiries in a short period can lower your credit score. If you're preparing to apply for a mortgage, avoid applying for other forms of credit in the months leading up to your application.
- Pay Off Existing Debt: Lenders look for borrowers with a manageable amount of debt. If you're carrying multiple debts, consider focusing on paying them off as quickly as possible. The less debt you have, the better your credit score will be, and you'll be in a stronger position when applying for a mortgage.
- Keep Old Credit Accounts Open: The length of your credit history is another important factor. If you have older credit accounts in good standing, keep them open. Closing these accounts shortens your credit history and may reduce your score. Lenders like to see a long track record of responsible borrowing.
- Monitor Your Credit Score: Many financial institutions now offer tools to help you track your credit score regularly. By monitoring your score, you can see the effects of your financial habits and take action if it begins to dip.
Improving your credit score isn't something that happens overnight, but with consistent effort and smart financial habits, you can boost your score and improve your chances of securing a mortgage with favourable terms. Whether you're aiming to buy your first home or plan to invest in property, taking steps to improve your credit score today will pay off in the future.
If you're thinking about purchasing property and need more tailored advice, feel free to reach out to our team of Dunedin based mortgage advisors. We can take a look at your current situation and offer up advice on how you can improve your credit score and get into your new home sooner.
Give us a call or click Contact Us at the top of the page to get in touch.