Baffled by all the different credit terms? Here’s a quick guide to what they mean:
Credit - In the context of personal finances, credit is when you have access to funds provided by another person or company, on the trust that you will repay those funds in the future. Personal loans, mortgages, credit cards are all types of credit.
But credit isn’t only about borrowing money. Companies that offer you services, or goods, that you pay after receiving them are also giving you credit. These can include organisations such as phone or power companies, or even a tradesperson who invoices you after completing work for you.
Credit bureau - A credit bureau, also sometimes referred to as a credit reporter, is a company responsible for gathering all the details of your credit transactions into your credit file. This information is then used to determine your credit score. There are three credit bureaux in New Zealand: Centrix, Equifax and Illion.
Credit check - A credit check is when an individual or organisation contacts a credit bureau to find out your credit score, and to view your credit file. There are two types of credit check: a soft check which is not recorded on your credit file and a hard check which is recorded on your credit file, and may therefore impact your credit score. Some examples of when a soft check could be made would be for quoting purposes or by employers as part of background checks on potential employees. A hard check is made when you are asking for approval for a type of credit.
Credit file - This is the comprehensive summary of your credit history compiled by a credit bureaux. It is used to determine your credit score. Your file is used by lenders to assess your risk when you apply for credit. You can also request your own credit file. This is free and the request does not impact your credit score.
Credit grade - When your loan application is assessed by Harmoney we take the information in your credit report, along with the information in your application, and assign you a credit grade from A1 to F5 which determines your interest rate and loan amount.
Credit history - Your credit history is similar to your credit file. It encompasses all your credit transactions.
Creditor - A person or company to whom you owe money.
Credit rating - This is often used to mean the same thing as your credit score.
Credit report - A credit report is what a potential lender receives when they request a credit check. It usually contains your credit file as well as your credit score.
Credit reporter - See credit bureau, above. These are the organisations that are responsible for gathering all the details of your credit transactions into your credit file.
Credit score - This is a number assigned to you between 0 and 1000 which reflects all the transactions and information in your credit file.
Creditworthiness - This describes how suitable for credit lenders believe you to be. Your credit file and credit score are indicators of your creditworthiness.
Credit utilisation rate - This describes the total amount of credit you are using in relation to the total amount of credit you have available to you. It is usually referred to as a percentage. For example if you have a total credit limit of $10,000 but currently owe only $5000, your credit utilisation rate is 50%. Having a low credit utilisation rate can have a positive impact on your credit score. Below 30% is generally considered good.