Getting your credit in order will help if you are buying a house

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A bad credit rating will make a bank think twice.


A bad credit rating will make a bank think twice.

If you are planning to try buy your first home some time in the near future, the state of your credit record will be very important.

But how do you know what’s on it? And what can you do if it needs to be improved?

Your credit record includes things such as your name, address, employer and occupation. It will show who has made credit inquiries about you and when, the applications you have made for any loans and credit cards, bills you have not paid, and records of any IDs that have been lost or stolen.

If you have been bankrupt or subject to a no-asset procedure or summary instalment order, that will also show up – and it can stay there longer after you’ve been discharged than the official insolvency register entry. In New Zealand, credit records are kept by Centrix, Dun & Bradstreet and Veda Advantage.

Bad credit can be more of a problem for people who are renting – a shared phone or electricity account is often held in one flatmate’s name, for instance. If they move on they can sometimes find the bill goes into arrears without them realising.

Shifting frequently also means it is more likely that bills go to the wrong address and end up unpaid.

Mortgage broker Glen McLeod said a black mark on a borrower’s credit history could stop a home loan application in its tracks.  “If it was a missed bill with a valid explanation then they may ignore it but if it’s to a financial institution they are more likely to say no.”

Defaults remain on a credit record for five years.

There are some steps you can take to make sure your credit record is clean.

1 – Pay monthly repayments on time. Under the new comprehensive credit reporting system, which is slowly being adopted by New Zealand firms, institutions are recording details of bills that are paid, as well as those that aren’t.

That means if you are on top of your obligations, other lenders can see it. Set up direct debits for your pay day so you don’t accidentally miss a payment and if you are registered for online banking, you may be able to set up a text alert system that will tell you whether you have sufficient funds in your account to meet all your bills.

2 – Don’t apply for too much credit.  Only put in an application when you really need it. Your credit rating will show a history of all the loans and credit you have applied for. If you have made a lot of applications in a short period of time, even if you were just shopping around for the best rate, it will make other lenders wary. The law allows lenders to provide a “quotation” without it registering on your credit score but this does not really happen yet.

3 – Update your contact details. Keep up-to-date on the electoral roll so that those who need to track you down to send a bill can do so. Set up a postal redirection when you move house.

4 – Pay off anything you owe. Once you clear a debt, it should show on your record as a paid default, which will look better than one that is still owing.

5 – Don’t pack your wallet with plastic. You need to have some borrowing history to develop a credit history, but too many loans and credit cards are not a good look, either, because there is the potential to easily rack up a lot of debt quickly.

6 – Don’t max out your cards. Lenders like to see that borrowers haven’t used up all the credit available to them because it shows restraint. It’s good to not have more than about a quarter to a third of your available credit used at any time.  That means having an unused credit card or a bigger overdraft than you need could actually help your score.

7 – Check your report regularly. It is important to correct any errors quickly. You should get a copy of your credit record from each of the three credit record providers. You’ll need ID and evidence of your name and address. If you discover accounts you did not apply for or defaults you did not know about, you could find you have been the victim of identify fraud. You can ask credit reporting companies to correct your information. They each have different systems to do this.

 – Stuff

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