You're more than just your credit score

You're more than just your credit score

Understand how lenders may score you differently from credit reporters


So you’ve gone ahead and found out your credit score from one of New Zealand’s three credit reporters. Well done. Maybe on the back of that, you’ve decided to apply for a personal loan only to find your chosen lender also talks about scoring you to determine what your loan interest rate might be.

What? Haven’t you been scored enough already?

With that in mind let’s take a look at how a lender scores you when considering a loan application, compared to how your bureau credit score is worked out.

1. A lender considers all the information that goes into creating your bureau credit score such as repayment history, your current credit limits and how many times you’ve recently applied for credit (this is the information contained in your credit file).

2. Combined with this lenders will also consider the information you provide as part of your loan application, such as your expenses compared to your income, your spending habits, your assets (even when you’re applying for an unsecured loan as with Harmoney) and your account balances, including savings. The other thing that may impact how your lender scores you is your past relationship with them. If you already have a successful borrowing history with that lender, they have first-hand knowledge of how good you are at repaying your debts.

Things you should know

  • It’s not how much you earn, but how you manage that income that lenders will take into account. There is a common misconception that low earners will struggle to improve their credit scores, or that higher earners will automatically have better scores. But it’s really about how well you can demonstrate financial responsibility.
  • Another aspect of your finances lenders may consider that your bureau credit score doesn’t factor in, is your debt to income ratio. That is your regular monthly income divided by your regular monthly expenses. So, for example if you earned $5000 per month, and had expenses of $2500 gives you a debt to income ratio of 50%. Different financial institutions will usually have different debt to income ratio requirements for different products. This figure helps lenders like Harmoney responsibly estimate your ability to service debt and try to ensure a loan won’t cause you hardship, putting you at risk of default.

To sum up

  • Credit reporters (also known as credit bureaux) determine your score based on all the credit information in your file as well as some positive payment history.
  • Lenders will also score you, based on that information as well as information you provide to them as part of your application. In the case of Harmoney we take that all financial information and then assign you a credit grade. This will determine the interest paid on your loan.

Next up in Credit Score Bootcamp:

What's in your credit file?

Read more:

Understand what impacts your credit score

What your credit score says about you

Five things you didn’t know impact your credit score

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