Building Blocks to a Credit Score

Everyone has this thought. Just turned 18, fresh out of high school and you get hit with the overwhelming realisation that you may not have a credit score! It’s a scary thought, isn’t it? OK, well maybe this realisation might not keep you up at night cradling yourself in your bed or anything. But, not having a credit score can make it somewhat difficult later on down the track when you need to borrow funds or take on debt to advance onto the next steps in life, i.e. buying a house. This is why it pays to look at building your score when you turn 18.

Before you turn 18, you are practically invisible to credit bureaus and lending organisations. There is no data collected from you because you are legally not allowed to sign a personal loan contact. Afterwards, however, it’s a completely different box of frogs. Your information becomes visible to credit bureaus and credit reference agencies, allowing them to provide information to lenders when you apply about borrowing money. The issue here is the fact that you have never borrowed money before, so lenders won’t have any information to go on.

Building your credit score can be an expensive process if done through credit cards. You will initially be seen as a risky borrower so you can expect the interest rate to be high. There are, however, ways to increase your credit score right off the bat. Saving you from having to pay through your pocket.

 

Paid your mobile phone bill on time every month?

Building a credit score is primarily done by creating a consistent history of made payments to providers and lenders. Paying your monthly phone bill or paying your weekly rent on time, helps contribute to this history. If credit bureaus are able to see a good track record of payments being made on time to your utility providers, then they may increase your credit score as they have a history of you being able to make payments on time.

 

Kept the same job and have a steady stream of income?

Nothing instils a lenders faith in you more than seeing consistency with your income. Having a record of a consistent stream of r can help increase your credit score as it makes you appear more reliable to the lenders.

 

Get on that electoral roll!

Making sure you are enrolled to vote does two things to help improve your credit score. Firstly, it verifies your identity, having your details verified on the electoral roll makes you appear less risky to lenders and helps eliminate the threat of fraud. Secondly, it provides evidence of your whereabouts/ residential address. This second point may sound a tad bit creepy but is it used to prove stability in your life and that you are able to receive bills and letters in the mail.

 

Are you signed up to a gym?

OK, well it doesn’t have to be a gym exactly, but being signed up to a subscription that makes regular direct debits from your accounts provides more evidence of your payment history. Paying by direct debit can be difficult for some as you must make sure you have enough money in your account each week. But being able to do so can prove to lenders that you are capable of managing your finances while simultaneously building a good credit history.

 

Avoid Payday Loans

This one is plain and simple, avoid payday loans. The criteria for getting a payday loan is quite low, meaning you don’t need a credit history to get one. While the criteria may be low, the risk is rather high, as the interest rate that goes along with them is frightening.  Credit reference agencies can see and show lenders that you may have applied for a payday loan, but they can’t see whether that application was accepted or not. Having a history of payday loans on your credit history as soon as you turn 18 appears irresponsible to lenders as it makes it seem like you may struggle to get by each week and cannot borrow responsibly… There seems to be a running theme here.

 

Be consistent and stable

To sum it all up, you need to be consistent and stable. Making regular payments, having money left over each week and being reliable is the key components to building a credit score. You have to essentially be near perfection with your payments as missing one payments or showing signs that you may miss one, makes you a riskier borrower and impacts your credit score. Be a reliable Randy and build strong evidence to support your claim that you are a trustworthy person. Do this consistently, and you will save a fortune on mortgage rates and loans when the time comes for you to borrow.

 

 

If you would like to read more information on building credit scores, check out these blogs:

https://nzcusouth.co.nz/comprehensive-credit-reporting-the-nuts-bolts/

https://nzcusouth.co.nz/credit-score-your-form-guide-would-you-back-yourself/

https://nzcusouth.co.nz/can-i-get-a-personal-loan-with-bad-credit/

 

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