If you're worried that you might have a bad credit rating, ignoring it won't make the problem go away.
The best thing you can do is to find out what the state of your credit is. Then you can start to make improvements where they'll make the biggest difference.
Why is your credit rating important?
Your credit rating is a tool that lenders use to judge your ability to pay back loans. Everyone starts out with a blank slate, and the financial decisions you make throughout your life – taking out loans, using credit cards, paying off debts etc affect the score.
Whether you're applying for a car loan, personal loan, mortgage or opening a credit account, your credit rating gives the lender an overall picture of your financial history. This helps them to decide whether or not to grant you a loan, and on what terms.
If they see that you have a history of late payments or defaulting on loans, they'll be less likely to offer you a loan at the rate you were hoping for.
How can you improve your credit rating?
A bad credit rating isn't the end of the world, but it can make it more difficult to access the finance you need to make changes in your life. The good news is that, in many cases, bad credit can be turned around – you just need to get out of bad spending habits and get better at managing your money.
You could improve your credit record by managing your loan well. Harmoney has subscribed to Comprehensive Credit Reporting which means it takes a balanced approach by looking at both your good credit history and your defaults when making credit decisions. Get our book on Comprehensive Credit Reporting
Check your credit report
If you don't already know your credit rating, you should request a copy of your credit report. You can request a free copy from any of the three credit reporting bodies in New Zealand.
This report includes detailed information on your loans and credit accounts, past and present, so you can see which areas are most important to concentrate on. If you spot any errors in the report, you should dispute these with the credit reporting agency as you may be getting penalised unfairly.
Pay your bills on time
If you can pay off all your bills and credit cards on time every month, this shows lenders that you're in control of your finances and are less likely to default.
If you're worried about missing a payment, see if you can set up a direct debit with your bank. Just make sure you always have the funds available.
Pay off your debt
If you're struggling to pay off debt, don't add more to the pile. Stop using your credit cards and don't take out more loans unless you really need them.
Find out which of your loans have the highest interest rates and make it a priority to pay those off first. If you're still struggling to manage your repayments while making ends meet, you should consider refinancing options such as consolidating your debt.
Debt consolidation involves combining multiple loans into a single monthly payment, designed to be more manageable in your circumstances. Find out more about debt consolidation with Harmoney.