Most Nzers clueless on credit score

Three in five New Zealanders don’t know their credit score, and it’s costing some of them dearly.

A survey by financial research agency Canstar found 60 per cent of people didn’t know their credit score, and Canstar’s Jose George thinks many people don’t even know they have one.

‘‘Our credit scores are these largely invisible things that attach themselves to us,’’ he said.

‘‘They can increase or decrease depending on our financial habits and position. They have a huge influence on whether, how much and at what rate, a lender is prepared to loan us money as it’s an indication of our creditworthiness to pay that money back.’’

The credit scoring industry was created for businesses such as banks, other lenders, and utility companies, which wanted to know the trustworthiness of people seeking to borrow from them or become customers.

Banks and other companies include clauses in their contracts allowing them to pass people’s payments data to credit bureaus such as Illion and Equifax (formerly known as Dun & Bradstreet and Veda, respectively).

Using that data, those bureaus create credit files for individuals and assign them credit scores from zero to 1000. These scores are designed to predict how likely they are to repay loans and pay their monthly power bills.

Most scores are between 350 and 800, with anything over 700 considered good.

It’s a commercial surveillance system no-one gets to opt out of, and George believes many people are largely ignorant of how it works.

However, the survey of 2733 people did not specifically ask about people’s level of knowledge of the system itself.

‘‘It’s worrying that such a large number of people are unaware what their score is as it could be costing them more than they realise,’’ he said.

George said the past year to 18 months had seen a marked rise in awareness of credit scores following the launch of Credit Simple, a business owned by Illion that lets people check their credit score instantly, for free, online.

Before Credit Simple launched, checking your score was either timeconsuming or costly, if you wanted it in a hurry because you were seeking a loan.

The business earns its money by then marketing loans, credit cards, mortgages, and power deals to those who have signed up to check their credit scores.

Many people arguably don’t need to know their exact credit score, including older people who have paid off their mortgages and have little need to borrow.

‘‘There’s a certain stage in your life where you are credit hungry: in your mid-20s, when you are getting a credit card, and mortgage, and getting your family set up. That tapers off in your 60s, when you are set up, and are no longer looking for credit,’’ George said.

There are real advantages in having a decent credit score.

A good score can be used to bargain for lower interest rates at the bank on things like mortgages and loans.

Banks may have a ‘‘rack rate’’ they advertise that appears to show every one of their borrowers pays the same rate, but George said people with strong credit scores get to bargain for lower rates.

Increasingly, lenders like Harmoney have finely graduated scales where the rate you pay is closely matched to your credit history.

The best ways to nurture your credit score are: to pay all your bills on time; to avoid repeated consumer debt; not carry debt on credit cards; and keep your credit card limits down.