Diana Clement: Cherish your good credit record, it's worth guarding

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A poor credit score can affect your chances for a mortgage, business finance and even a job. Photo / Getty Images
A poor credit score can affect your chances for a mortgage, business finance and even a job. Photo / Getty Images

Credit scores are important - guard yours well. A good credit score is essential for getting a mortgage, business finance and perhaps even a job.

Simple defaults such as missing a mobile phone bill payment can affect your credit score. It happens.

Bad credit ratings aren't just reserved for people who can't make their hire-purchase payments.

A mortgage-holder might lose his or her job and get in arrears briefly. That one-off non-payment then sits on their credit record for five years - even once they've paid it.

When I wrote about going guarantor a few weeks back, a reader replied that when he needed to borrow money he was declined because of his daughter's actions. The daughter had defaulted on her mortgage and because the father was a guarantor of her loan, the defaults were recorded, legitimately, on his credit file.

"I have never told my daughter how much going guarantor for her cost me," he said. "In her younger days it sounded a great way to help her out."

There are several ways to sully your credit score. As well as defaults, others include:

Applying for credit too often. This leaves a footprint on your credit record. Too many of these and next time you go to get credit or a job you could be turned down.

Being a bad tenant. Landlords often check credit records before offering tenancies. If you're moving from tenancy to tenancy this will show up and a prospective landlord might join the dots.

Going through the no-asset procedure (NAP). NAPs are an alternative to bankruptcy for people with debts of between $1000 and $40,000. These show up on your credit record, as do bankruptcies.

Not paying your taxes. Inland Revenue is considering reporting non-payments to Veda Advantage.

Vodafone customer Ramandeep Singh found he couldn't get a mortgage thanks to one unpaid Vodafone bill. Singh complained online that Vodafone had sent his bill to the wrong address and eventually had the default removed from his account.

Bad credit can also be sexually transmitted. As soon as you sign up for loans, mortgages or utilities with another person for joint credit you risk having their actions affect your credit score. That can even happen after the marriage or partnership has finished.

John Roberts, managing director of Veda Advantage, sees many cases of marriage splits where one person stays in the family home and fails to pay the mortgage. The resulting default affects both parties.

Students who leave behind unpaid phone bills or other debts sometimes find they're affected years later.

The way credit ratings are scored is changing. New laws were enacted last year, which mean credit reporting agencies Veda Advantage, Dun & Bradstreet and Centrix can collect positive information such as whether an individual's debt repayments and utility bill payments are on time.

The great thing for consumers about positive credit reporting is they can repair their own credit relatively quickly by showing they're paying bills on time.

Under the old system lenders, employers, landlords and others made judgments on defaults and numbers of applications for credit.

"It helps those people who would otherwise have to look for credit in more dubious areas of the finance industry," says Lance Crooks, Dun & Bradstreet's New Zealand general manager.

The big but is that over a year later it's not yet happening. Credit providers and the credit reporting industry have had to agree on data standards and "reciprocity", which is how each provider would access information provided by others.

Veda Advantage is working with two banks and a finance company on a trial of positive credit reporting. Roberts says the banks' legacy computing systems weren't able to provide monthly positive updates easily and it has taken a lot of work. He expects the first banks to go live in mid-August. The other banks and utility companies watching to see the outcome of these trials could take longer.

Anyone who needs to repair their credit in a hurry might want to choose one of the positive reporting banks as soon as they go public.

Kiwibank says when it does start positive reporting, the data will be backdated to June 2012, which is good news for anyone who needs credit and has been an A-student at paying their debts since that date.

There are "credit repair" agencies that claim they can repair your credit. They charge money, often quite a lot, to clean your credit record of defaults.

For example, one agency charges $997 to complete an application, of which it refunds $497 if it can't help at the beginning. The $997 covers the initial investigation. Negotiations for each default cost another $399. If successful there is a final fee of $199 a default. That's just under $1600 for one default notice and nearly $600 for every subsequent black mark to be removed from your credit record.

Roberts says credit repair companies go through the same process as individuals could for free.

However, I've heard that credit repair agencies sometimes lean on creditors to remove the defaults even though they should be there to warn off lenders. A lawyer's letter can work wonders in that situation. Having said that, consumers could get a letter from their own lawyer for less than the credit repair agency's fees.

Anyone with credit score issues who wants a mortgage should consider using a mortgage broker. Brokers have relationships with lenders and can sometimes get a difficult case over the line.

Kim Lyons of First Rate Mortgages says he gets clients to write the story around defaults in their own words and he will send this and his assessment of them to the lender. With the full picture the lender may then be prepared to advance a mortgage. If not, Lyons might consider using a non-bank lender for a year or two until the client has built up enough of a payment track record to qualify for a mainstream mortgage.

If a client has an outstanding debt, no matter how small, Lyons will recommend they pay it back.

Having a default but no money outstanding looks better than a default and unpaid debts.

Virtually everyone will benefit from a good credit record - even if they don't need loans. Telcos and utility providers credit-check you before you can take out an account.

Employers can and do ask potential recruits to agree to a credit check.

This offended Trade Me member camelot9 who posted on the message boards that he or she didn't believe employers needed to know about a potential employee's credit score.

"So what if I'm poor or wealthy? Or in debt or not? How does this impact on the employer's perception on how well you perform at work?"

Other members responded with a variety of reasons for employers to credit check potential employees, such as the need to handle cash. In camelot9's case the job was in hospitality and a member commented: "A restaurant manager I knew used to turn up at parties with crates of mid-range bubbly and kilos of fillet steak for the BBQ. Guess what, that restaurant went bust in less than a year."

Anyone can refuse a credit check. If, however, I was a lender or an employer I wouldn't want to lend to or employ that person.

One thing all Kiwis should do is check their credit records every few years. This can help them identify any mistakes. It can also alert them if they have been a victim of identity theft.

It's free - although the providers try to encourage you to pay for a quick response.

Anyone who wants to challenge the information on their credit file will need to approach the credit provider first. They can then make a written application to Veda Advantage, Centrix or Dun & Bradstreet asking for the issue to be investigated. If they are not happy with the decision they can take the matter to the Privacy Commissioner.

Details of cases heard by the commissioner can be found on the privacy.org.nz website along with details of the Credit Reporting Privacy Code at tinyurl.com/mxblqlb

- NZ Herald

Diana Clement is a freelance journalist who writes about personal finance and careers. She has worked as a journalist for more than 25 years in both New Zealand and the UK. Diana has contributed to a large number of local and international publications. Her pet topic is the secrets of saving money.

Read more by Diana Clement

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