Frances Cook: You don't need a credit card to have a good credit score

A credit card is one way, but certainly not the only path to building up a credit score. Photo / file.

There's a lot of misinformation floating around about credit scores.

The first problem is in how much personal finance information on the internet comes from the United States.

Some money advice is universal, but when it comes to something like a credit score, it's entirely different depending on the country you live in.

Listen to the Cooking the Books podcast here:

The second issue is that companies don't exactly make it an easy issue to understand.
You could almost be suspicious that lenders prefer the credit system stay a bit murky and confusing for customers.

Lastly, our credit system has changed in the past few years. But even though that has confused people, the good news is, the changes have been for the better.

Here are the main things you need to know.

You can boost your credit score quickly by making extra debt payments

Before 2012, lenders only kept a record of your mistakes; missed payments, late fees, and high levels of debt.

But now the system uses positive credit reporting, or "comprehensive credit reporting", which means a switch to good behaviour will also be reported and can balance out past misdeeds much faster.

Now they take into account if you have a good track record of paying bills on time, so that one mistake doesn't throw everything out of whack.

If you've missed a payment, you can redeem yourself much quicker by becoming a model citizen again.

You don't have to have a credit card to have a good credit score

Let's start with the obvious; having a credit card and paying it off every month without fail is an easy shortcut to have a good credit score. But it's far from the only way.

Many people are wary of credit cards, and for good reason.

We can get one with the best intentions in the world, and then sabotage ourselves by not using it as planned.

In fact, studies show a credit card can lead to you spending anywhere from 70 per cent to 100 per cent more than if you were buying with cash.

You can also build up a good credit score with prompt payments to your mobile phone plan, or for utility bills like electricity.

If you have a car loan, mortgage, or hire purchases, those are also forms of debt that they'll take into consideration.

Pay them off on time, or even early, and watch that credit score shoot upwards.

You can check your credit score without handing over personal data to random companies

There are lots of middleman companies that will offer to check your credit score for you, but you don't need to hand your details over to them.

In fact, asking for too many third party credit checks can throw a red flag on your history, and itself lead to your score going lower.

Go straight to the source and get the information for free from the three credit reporting companies in New Zealand; Centrix, illion, and Equifax.

You're not going to be perfect, so don't try

You credit score will be anywhere from 0-1000, but perfectionists, take a breath.

Scores of 1000 are unheard of. The simple fact is, there will always be something to bring you down a peg.

A score between 500-600 is considered normal, while anything above 700 is above average.

If you get a result in the 800+ range, give yourself a pat on the back and move on.

Your credit score won't be the only factor in consideration

A credit score is used when deciding to give you a loan. It can determine how friendly the company is, and whether you get a cheaper interest rate.

If you're a good bet that they think is more likely to pay them back, you'll get a better deal.

It can also be used when you're applying to rent a house, get insurance, open a bank account, or even when applying for some jobs.

But because they're trying to figure out how safe you are to work with, they'll also use other information alongside the credit score, which can be helpful for you.

How much money you make, your expenses, and any other assets or property that you own, will all be taken into account.

When you remember that they're trying to figure out how safe you are to lend to or work with, the system makes more sense.

Get all the tips when you listen to the latest Cooking the Books podcast here:

• If you have a money question you'd like answered in the future, come and talk to me about it. I'm on Facebook here, Instagram here and Twitter here.

• Hear more on the Cooking the Books podcast. You can find new episodes in the Herald, or subscribe on iHeartRadio, Apple podcasts app, or Spotify, or wherever you get your podcasts.