Everything You Need to Know About Your Credit Report

Whenever you apply for a loan, credit card, or even rent an apartment, lenders will likely perform a credit check. This involves accessing your credit report, a detailed document that compiles your borrowing behaviour. Understanding what a credit report is and how it works empowers you to manage your financial health and make informed decisions. This comprehensive guide will equip you with everything you need to know about your credit report, from its contents to how to obtain and improve it.

What is a Credit Report and Why Does it Matter?

A credit report is a record of your borrowing behaviour, maintained by credit reporting agencies (or credit bureau) – specialised companies that track credit activity. During a credit check, lenders access your report to assess your creditworthiness, which is your likelihood of repaying borrowed money. A good credit report translates to favourable loan terms, lower interest rates, and access to better financial products. Conversely, a negative report can lead to loan rejections, higher interest rates, and difficulty securing housing.

What’s In Your Credit Report?

Your credit report contains various sections that provide a snapshot of your credit history. Here’s a breakdown of the key components:

Personal Information: This includes your name, address, NZ Driver Licence (NZDL) number, and date of birth.

Credit Accounts: This section details your credit card accounts, loans (including mortgages and car loans), and any other lines of credit you hold. It will list the creditor’s name, account type, credit limit (for revolving credit), account opening date, and balance.

Payment History: This is the most critical section, as it reflects your track record of making timely payments on your credit obligations. Late payments, defaults, and arrears (past-due payments) will be reported here, negatively impacting your score.

Public Records: Bankruptcies, repossessions (when collateral is taken away due to non-payment), and tax liens are reported in this section. These events have a significant negative impact on your credit score and can remain on your report for several years.

Credit Inquiries: Whenever you apply for a new line of credit, a credit inquiry is recorded on your report. These inquiries can slightly lower your score, but multiple inquiries within a short period can be a red flag for lenders.

How to Obtain Your Credit Report?

You are entitled to a free credit report from each credit reporting agency . Here’s how to access them:

• Online: Visit the website of the Ministry of Business, Innovation and Employment (MBIE) and follow the instructions for requesting your report from each credit reporting agency.

Understanding Your Credit Score

Your credit report provides the data used to calculate your credit score, a three-digit number that summarises your creditworthiness. While the specific formulas used by credit reporting agencys are proprietary, the main factors influencing your score include:

Payment history : This is the most significant factor, with on-time payments significantly boosting your score.

Credit utilisation ratio: This refers to the amount of credit you’re using compared to your available limit on your credit cards and lines of credit. Keeping your utilisation ratio low (ideally below 30%) positively impacts your score.

Length of credit history ): A longer credit history with responsible management generally leads to a higher score.

Credit mix : Having a healthy mix of credit accounts, such as credit cards and installment loans (like car loans or mortgages), demonstrates your ability to manage different types of credit responsibly.

New credit inquiries): Multiple inquiries within a short period can lower your score slightly. However, inquiries for things like renting a property or getting utility connections typically have a minimal impact.

Improving Your Credit Report

If your credit report contains errors or inaccurate information, you have the right to dispute them with the credit reporting agency. Here’s how:

• Review your credit report carefully from all three credit reporting agenciess.
• Identify any errors or inaccurate information.
• File a dispute online or by mail with the specific credit reporting agency.
• Include supporting documentation, such as payment receipts or correspondence with the creditor.
• The credit reporting agency will investigate your dispute and respond within a reasonable timeframe, typically 10 working days.

Beyond disputing errors, here are some ways to improve your credit score in:

• Pay your bills on time consistently, including utilities, phone plans, and rent.
• Keep your credit card balances low relative to your credit limit. Aim to utilise less than 30% of your available credit.
• Don’t apply for too much credit at once. Multiple inquiries within a short period can negatively impact your score. Space out your credit applications.
• Become an authorised user on someone else’s established credit card account with a good payment history. This can piggyback on their positive credit history and improve yours.
• Consider a secured credit card. This type of card requires an upfront security deposit, which becomes your credit limit. Using it responsibly and making timely payments can help build your credit history.
• If you have defaulted on any debts, work with a credit repair specialist or financial counselor to develop a plan to manage your debt and improve your credit score.

Maintaining a Good Credit Report

Building and maintaining a good credit report requires ongoing effort. Here are some tips:

• Monitor your credit report regularly. You can obtain free copies from each credit reporting agency.
• Address any errors or discrepancies promptly.
• Practice responsible credit behavior by paying your bills on time and managing your credit utilisation ratio.
• Avoid taking on more debt than you can manage.
• Be mindful of credit card reward programs and fees. Don’t get caught in a cycle of high-interest debt for minimal rewards.

By understanding your credit report and taking steps to improve it, you can unlock a world of financial opportunities. A good credit score can lead to lower interest rates on loans, better insurance premiums, and easier access to rental properties. Remember, building good credit takes time and discipline, but the long-term benefits are well worth the effort.