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How to influence your credit score

Having a good credit score is important. However, understanding what it is and how it works isn’t always straight forward.

Put simply, a credit score is a measure of your ‘creditworthiness’. It can impact your life in many ways – for example, by affecting your interest rate on a loan, your job opportunities, and your appeal as a residential tenant.

But a credit score is much more than this: it is a key part of your financial and personal picture, and most importantly, something you can positively influence.

Step 1: Understand your credit score

Your credit score measures your creditworthiness on a scale between 0 and 1,000* and represents how likely you are to pay your bills on time. A common credit score falls between 300 and 850 - the higher the score is, the better your credit rating. By improving your credit rating, you may become eligible for better offers such as a lower interest rate with a loan provider.

As time goes by, your credit score will change due to a range of factors. For example, if your payment history shows that you pay your bills on time this will positively affect your credit score. Whereas not paying your bills or loans on time will negatively affect your score.

*There are three credit agencies in New Zealand that report credit rating. Your score may be reported by any of the following agencies:

Each credit agency uses a different score card and applies a different weighting to the factors which affect your score. Therefore, you may get a different rating depending on which agency is used. To better understand how each agency scores, see their websites above.

Step 2: Give your credit score a boost

Though the credit agencies score differently, there are factors which will positively influence your score regardless of which agency is being used. Understanding these factors is a good step towards improving your score.

Have you been missing bill payments? If you’re consistently late, your payment behaviour will damage your score. The more payments you make on time, the healthier your credit score will be.

Unpaid defaults are another common credit issue. In this case, being proactive can make a big difference. It is a good idea to contact your credit provider as soon as possible to discuss an action plan, and make sure you stick to what is agreed.

Step 3: Monitor your credit score

You can obtain a free copy of your credit report from any credit agency. Credit reports contain a wealth of information like balances, debts and defaults. It is important to check this information regularly, so you can keep the information up-to-date and accurate. The content of your report is ultimately used to calculate your credit score, so it is important contact the agency if the information is incorrect.

Remember: Once you have reviewed your credit report and started working on improving your credit health, don’t just ‘set and forget’ it. Your credit score is a constantly evolving snapshot of your financial and personal life. Keep track of any movements, so you know what helps or hinders your credit rating.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure the content is correct, the information provided is subject to continuous change. Please use your discretion and seek independent guidance before making any decisions based on the information provided in this article. The links provided in this article are for convenience only; AA Finance Ltd. bears no responsibility for the accuracy, legality or content of the external sites or for that of subsequent links.

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