Your credit score is important because it plays an important role in deciding if your loan or credit application gets approved and how much you get approved for. It can be frustrating when your application gets turned down, but fortunately, there are some practical and simple things you can do improve our rating as outlined below.
1. Check your Credit report
First things first, obtain a copy of your credit report. There are three main credit reporting companies in New Zealand including Centrix, Dun and Bradstreet and Equifax. To check your report you would need to contact all three companies who are required by law to provide you with a copy of your credit file for free, but expect to wait at least 20 business days for your free report. If you need it sooner, there is an option to pay to get it sooner.
Knowing what is on your credit report can help you understand where you stand and what changes you need to make but also allows you dispute any entries that are wrong or disputed. This brings us nicely to our next tip.
2. Query an errors in your report
Accidents do happen, so don’t be shy to dispute any errors even if the error is to do with a bill that which you refused to pay due to a dispute. Credit bureaus are required by law to investigate any error you bring to their attention. This often involves them querying the creditor to provide proof and if they fail to do so or do not respond within a reasonable time the item is removed from your record.
3. Don’t apply for multiple lines of credit within a short period
Every time you apply for a credit in the form of a credit card application, personal loan, home loan etc this results in a hard credit enquiry on your file (as oppose to a soft credit check when you request for your own credit file). Hard credit checks reduce your credit score even if your application is approved. So, if you have been turned down for a credit card do not rush out and submit several applications as this could leave a severe dent on your credit rating. Apply for a credit card one at time and allow for sometime in between application.
4. Reduce your debt to credit ratio
Your debt to credit ratio is simply the percentage of your total available credit that you have borrowed. For example, if your credit limit is $1,000 and you have borrowed $500 of this $1,000, then your debt to credit ratio is 50% because you owe 50% of your total available credit. If you were to reduce your debt to 250% then your debt to credit ratio would drop to 25% because $250 is 25% of $1,000.
Your debt to credit ratio is used by lenders to determine how much financial stress you might be under. The assumption is that the more financial hardship you are facing, the more likely you are to use up your available credit resulting in a high debt to credit ratio.
5. Increase your credit limit
As you have probably figured out by now, increasing your credit limit would also help to reduce your debt to credit ratio. If you owed $500 and you got your credit limit increased from $1,000 to $2,000, then your debt to credit ratio would improve from 50% to 25% simply because of the higher credit limit.
6. Get a line of credit preferably with no-annual fee
Without any line of credit you might not have any credit history which is enough for some lenders to refuse to offer you a line of credit. A new line of credit would also improve your debt to credit ratio, but only do this if it is not likely to become a financial burden for example, some credit cards require you to pay an annual fee for having the credit card. A line of credit can also mean simply putting your name on your utility or phone bill.
7. Pay your bills on time
A record of inconsistent and late payment of bills is probably not going to help your credit score. Even when you are late with the payment try not to be too late
8. Pay more than the minimum repayment on your loan
Pay back more than the minimum repayment on your loans shows what you are working towards being debt free and as such reflects well on your credit history.
9. Pay off outstanding debt
This is easier said than done, but it still has to be said. Paying off your debt of course would help improve your credit score as it reflects positively and shows that you are able to pay back your loan or credit line you are applying for.
10. Diversify your credit
This sounds strange at first, but having a diverse range of credit type shows that you can handle a range of credit types at the same time. Note: some types of credit such as payday loans can negatively impact your rating.
So, there you have it, 10 practical and simple tips to help you improve your credit score.
Considering getting a credit card?
The best credit card for you would depend on your personal circumstance and how you intend to use your credit card. We have put together a list of some of the best credit cards in New Zealand to help you find the best credit card in NZ to suit your individual needs. Alternatively, you can narrow down your search by credit card type such as interest free credit card, low rate credit card, balance transfer, credit card reward or air nz credit card