Meet Harmoney’s Chief Credit Officer Dave Nesbitt. There’s not much he doesn’t know about credit scores, so we thought we’d put him in the hot seat, and ask him some common credit score questions.
When did you last check your credit score?
Yesterday actually, partly because I knew you’d be asking. I was pleased to discover that some older credit enquiries had dropped off which had improved my score.
So, how often should you check your score?
As an example, if you sign-up to (credit reporter) Equifax, they have a paid service which provides an updated score every month and a full copy of your credit file every quarter – so that implies their view on how frequently you should view the full file compared to just tracking the score. In NZ you are entitled to view your credit file for free, unless you require it urgently.
Why should you bother with your credit score if you’re not getting a loan or a new credit card?
If you know your score and are happy with it, perhaps that’s fine. But if you don’t know your score, you might just suddenly discover you need to do something about fixing it on the eve of making a credit application. You might be too late. An injured credit report like any wound, takes time to heal.
What part does income play in a credit score?
It has no part in a credit score – it’s not recorded. Income is still important for credit applications though, to demonstrate stability of earnings, capacity to afford general living and current payments on debts or obligations plus have enough left over to afford credit
If you’re living paycheck to paycheck, how do you even begin to fix your credit score?
The same as anyone else: first, assess whether you have an issue with your credit history, then get some advice and educate yourself on how to go about fixing it. If your current financial position makes it difficult to repair your credit (because you're behind on payments, for example), seeking advice from a financial counselling service is probably a good idea. They should be able to advise you on how to improve your circumstances and work towards a better credit file.
There are several non-profit and free services out there.
How does Harmoney use credit scores?
Harmoney looks at a wide range of factors when assessing the credit risk of loan applications. It might help to think about the things you, as an individual, might want to know if you were lending someone money. It’s probably things like:
- Who’s asking?
- What’s their relationship to you?
- What’s their capacity to repay?
- Are they reliable or dependable?
- Is it a worthwhile purpose?
A bank or loan company such as Harmoney needs to ask those same questions in a very short time and without knowing the loan applicant personally. The information in your credit file, and your credit score, are used with the information you provide during the application process to help Harmoney answer some of those questions and draw a clearer picture of who the loan applicant is.
Once my score is good, will it stay that way?
No. Data on credit files expires – so if you conducted no credit activity at all for an extended period, data will start to drop off of your file. Credit activity means an action you've taken that causes a change on your credit file, such as a new enquiry by making a credit application or a credit limit change on a credit card, for example. Closed loans disappear from your file after 24 months, and credit enquiries drop off after 5 years. A credit file is a living thing and needs to be attended to or watched regularly.
What’s the one thing you want people to know about their credit score?
Like you visit your health professional to know you’re in good health, you need to do regular health checks on your credit history to ensure it’s healthy. Don’t wait to find out something’s wrong; you might be too late to fix it when you’re applying for credit. A small change in behaviour now might be less painful than missing out on the credit you wanted for the terms you were expecting. Prevention is worth a pound of cure.
Dave’s last word:
Don’t consider credit scores in your own terms. Just because you think your behaviour is good, doesn’t mean you can expect a good credit score. Credit scores are based on statistics that come from everyone’s behaviour, not logic. That means building a good credit score tends to come from understanding what builds a good score and sticking to that behaviour, rather than what you would think should improve your score.
Read more on Credit Score Bootcamp