It is very important that you have a positive credit score, when you want to buy a property. It certainly makes everything a lot easier! A positive credit history is crucial for securing mortgage approval from banks. A postive credit score demonstrates financial responsibility and reduces the risk for the banks. A lower credit score might force you to seek financing from second-tier lenders, often resulting in higher interest rates and less favourable terms.

Tips for improving creditworthiness

If you have a low credit score, that is something you need to work on. Below are some tips and strategies to help you improve your credit score and also general tips on how to keep your credit score low.

  •     Timely Payments and Debt Reduction: Prioritise making all payments on time. It really doesn’t look good if you are always paying bills late.
  •     Avoiding Credit Cards: Be cautious with credit card usage, as even the card limit can affect your lending capacity. In fact, avoid having a credit card altogether if possible.
  •     Debt Collection Impact: Avoid letting any debts go to collection agencies. This can negatively impact your credit score and ability to borrow money for up to five years, regardless of the debt amount.
  •     Eliminating Afterpay Accounts: We cannot say this enough! Get rid of any Afterpays you may have and avoid them in the future. If you cannot afford to pay for the dress or the new hunting gear in full, don’t buy it. Remember: Live within your means and spend less than you make.
  •     Communication with Creditors: If you have debt, make sure you communicate with creditors. Open communication can lead to negotiated settlements, payment plans, or even debt forgiveness in some cases.
  •     Debt Consolidation: If you have debt, consolidate it as it will most likely get you a lower interest rate, and it will make paying off your debt much more simple and manageable.

Debt Consolidation 101

Let’s dive a little bit deeper into debt consolidation, as this a very important one that many people can benefit from. Debt consolidation is a strategic financial move that can significantly impact your credit score and overall financial well-being. Let’s look at the benefits of debt consolidation:

  • Lower Interest Rates: One of the primary advantages of debt consolidation is the potential for lower interest rates. When you consolidate high-interest debts, such as credit card balances or personal loans, into a single loan with a lower rate, you can save money on interest payments over time.
  • Simplified Repayment: Managing multiple debts with varying due dates, interest rates, and payment amounts can be overwhelming. Debt consolidation simplifies your financial life by consolidating everything into one monthly payment. This makes it easier to track and manage.
  • Budgeting and Financial Planning: Consolidating your debts allows you to create a more effective budget and financial plan. With a clear understanding of your monthly payment obligations, you can allocate funds more efficiently, prioritise debt repayment, and work towards achieving your long-term financial goals.
  • Avoiding Default and Collection: Falling behind on multiple debts can lead to default and collection actions. Both of which can severely damage your credit score. Debt consolidation helps you avoid these negative consequences by ensuring timely payments and proactive debt management.

Let’s take a look at your credit score

Now that we have gone over the importance of having a good credit score and how you can improve it, it’s time for you to take action. That’s why we’ve created these assignments:

  1. Download your personal credit report. You can do that here: https://www.centrix.co.nz/my-credit-score/.
  2. Identify any issues in the report. Your credit score will be between 1 and 1000. The higher the score, the better. If your score is low, identify where the issues are.
  3. Build a plan for how to address these issues, e.g. consolidating debt, making sure you pay bills on time, closing Afterpay accounts etc.

Disclaimer:

Everything shared in this blog post is general financial advice. For financial advice tailored to you, please book a kōrero with us.