KEY POINTS:
As the Christmas credit card bill arrives with the phone, power and rates accounts it might be tempting to put off paying it but, as credit agency Veda Advantage warns, it could jeopardise your ability to get a home or business loan.
The number of people taken to
court or referred to debt collection agencies shot up by 14 per cent last year and Veda's New Zealand chief, John Roberts, is expecting another increase this year as people feel the pinch from rising petrol, food and power prices and higher interest rates.
Veda Advantage is one of two main companies, the other being Dun and Bradstreet, that keep and update a database of credit histories for almost every adult and about 800,000 businesses.
If you have ever had a power account, phone bill, taken out a home loan or got finance to buy that latest consumer must-have you will be on their records.
Those records are accessible to any company that offers credit and signs up to the system.
Each time you are checked out by a lender it leaves a footprint on your file which says who did the credit check but not whether a loan or credit was approved, or for what purpose you were applying for the credit.
If you haven't paid a bill and it is listed with a debt collection agency and they were unsuccessful in getting money from you it will go on your credit history as will any court actions involving unpaid debts. This information is stored for up to five years.
The only time something comes off your negative credit history is if you question it and Veda's team finds the report was inaccurate.
Even if you pay the bill it remains on the record but with a flag to show it has been paid.
Unfortunately there are no records to show whether you have paid loans on time to balance out the negative history.
Roberts says research shows 90 per cent of defaulters don't pay because they can't pay and the current system does not allow them to be rehabilitated.
Instead they are forced to go to finance companies for loans that can carry high rates of interest.
The two main areas where money is owed is for unpaid landline phone and mobile bills and unsecured personal loans, which can include credit cards.
Roberts says there is also a worrying trend emerging among the "Y generation" - those in their early thirties and younger. While they represent around 24 per cent of the population they make up 33 per cent of listed defaults and the level is growing.
Roberts says most are not even aware that the defaults will have an effect on their ability to borrow.
"They come out of tertiary education with a degree of acceptance of credit. They already have loans and as latest figures show may start their first jobs owing $29,000.
"They then move into a flat, buy a car on finance, buy a flat-screen TV and entertainment system and have to have the latest iPod to go running with. This generation is the 'I want it now' generation," he says.
"So they go buy it and end up with four or five different loans then reach a point when they can't pay and something has to go."
Roberts says part of the problem is that the law is designed for a generation that saved up for all their purchases, and is outdated.
Veda Advantage is trying to encourage people to take an active interest in their credit profile. People can access their history for free by going to www.mycreditfile.co.nz, downloading a form and posting it in.
Roberts says those wanting to open their own business should also be careful as many credit checkers will search out the names of directors and do personal credit checks on them before getting involved.
In times of a slowing economy, Roberts believes, it is also more prudent for small and medium-sized businesses to check who they give credit to.
He says that only about 1 per cent of small-to-medium sized companies check the credit histories of those they do business with.
Yet one of the main reasons that so many new businesses go under is debt.
The service costs $320 a year to subscribe to and $5.40 for each inquiry.