The good news is that there are ways to rehabilitate yourself in the eyes of lenders.
Since 2012 credit agencies Veda Advantage, Dun & Bradstreet and Centrix have been allowed to record "positive" (also known as "comprehensive") information about consumers' monthly payment history on products such as credit cards, personal loans, mortgages and utilities. In the past only "negative" data such as defaults, bankruptcies and multiple credit applications was listed.
"The benefits of comprehensive is that it looks at the good and the bad," says Matt Owen, national sales manager at Dun & Bradstreet. "There is an acceptance by [credit providers] that when people go through hardship that doesn't mean they are going to be a bad customer throughout their lives."
Owen offers the example of a student who misses a number of payments, but subsequently sorts out his or her financial situation.
"Following on from that there is a trend [of regular payment] for the next four years. They haven't missed a payment."
Under the old system the former student would be penalised for the bad behaviour and not credited for the subsequent good behaviour.
Tracy Pennell, product general manager at Veda Advantage, says the positive reporting "completes the jigsaw" for lenders. For borrowers it can show you're now on top of your commitments after going through a rough patch, she says.
The problem is that not all credit providers are actually providing and/or consuming the positive data.
It's a big, expensive project for credit providers such as banks, finance companies and utilities providers that are already weighed down by law changes and regulation. Most admit it would benefit both their business and customers.
Consumers who want to benefit from positive reporting need to choose providers carefully and ask them if they are both providing and using positive data if they want their good behaviour recorded.
Only one bank I approached has completed the transition. Westpac says it provides positive data and also makes use of it, and looks at both the good and bad of a potential borrower's credit record before deciding whether to lend to them.
"Comprehensive reporting assists with our ability to review the significance of bad credit and how it has changed for some customers through time," a spokeswoman said.
"However, we do emphasise that bad credit cannot be 'undone'."
An important point from Westpac is that the data available to it is limited because other banks aren't providing all their data yet.
ASB says it has "started using positive credit reporting in a number of our lending decisions, and we expect to broaden its use to the majority of our lending decisions over time". Kiwibank is producing, but not yet using data. The ANZ, BNZ and Co-op Money aren't yet using the system but are committed to doing so.
I didn't call every provider but was told that some larger finance companies and also utilities providers such as Mighty River Power are starting to use it.
If you're turned down for credit by an organisation because of a bad credit history don't give up, says Raewyn Fox, chief executive of the New Zealand Federation of Family Budgeting Services (NZFFBS).
"There will be shades of difference" between lenders and utility companies, says Fox. Even though one or more say "no" another might agree to lend.
Much of recovering from bad credit is about reviewing your budget and planning to stay within it, says Henry Lynch, chief executive of Co-op Money.
It's also good practice to pay your bills and loan repayments by direct debit. That way you can't miss them.
Pennell has a number of tips for anyone who has a less-than-clean credit record. They include:
Keep track of your payments.
Only apply for credit when you really need it.
Make sure if you use buy-now pay-later deals, that you remember to make the payments.
Pay off any defaults.
Work with your creditors, say Rob Collins, general manager of New Zealand Credit Union Auckland.
"If you can show that you have arrangements with your previous creditors and are keeping to them, you will get a second chance. If you refuse to pay, go bankrupt or No Asset Procedure, you're unlikely to get a second chance because you've shown your true colours the first time."
Sometimes, however, even positive data won't help you get a mortgage from a high-street lender. It will require a bit more work to resurrect your finance.
Loanmarket mortgage adviser Craig Pettit recommends the Resimac Specialist Clear home loan product, which allows borrowers to resurrect their credit records. Customers need a 20 per cent deposit and will be charged an interest rate ranging from 7.74-9.88 per cent depending on how bad their credit history is.
After every year of good repayment history, the interest rate drops by 0.25 per cent until the customer has shown him or herself to be worthy of prime lending. Paying down the loan faster will help them move on.
Usually it takes two or three years of regular payments before the borrower qualifies for the standard rate, which is currently 5.84 per cent.
Some customers choose at that point to refinance with a bank and others stay on, says Adrienne Church, Resimac's mortgages general manager.
Everyone ought to check their credit files with agencies Veda, Dun & Bradstreet and Centrix from time to time. Even if your record is clear with one, it may not be with the others.
Veda and Dun & Bradstreet try to steer you towards a paid-for check, but if you fish around on their websites you'll find free options. My Dun & Bradstreet report was completed for free in just over an hour when I sought one this month.
Evans says it always surprises him how many people have no idea if their credit is good or bad. "Many believe they have bad credit when in fact they don't, and vice versa. So a credit check is a sound starting point."
If there are errors in the record, the reporting agencies are required to fix them, providing you can supply proof. Pennell says often when people check, they'll find something in the past that they'd forgotten.
"When they hear it was four years ago they sometimes remember."
Another factor that the NZFFBS is watching with interest is the responsible lending code, which came into effect on June 6. It requires lenders to do more than simply look at a credit rating. "If you can have had a record of time where you can show bank statements, companies should take notice of that."
