Beginner's guide to credit scores

Not sure what a credit score is? Or why you should care about yours? This guide has everything you need to know.


What's a credit score?

A credit score is a point system that tells people how good you are at paying your debts, based on your financial history. It can form part of their decision to lend money to you as lenders want to know that you can afford the debt you are taking on.

Your credit score is based on:

  • How much you've borrowed in the past, and where from
  • Whether you've paid your debts back on time
  • How often you've applied to borrow money
  • If you've ever failed to pay money back (this will sink your credit score)

Most scored are out of 1,000. A good score is generally between 500 and 700. If you're higher than that, you're a "credit unicorn" - so congrats if you've achieved this magical status!

It's pretty common to have a lower score when you're young. Usually it means you haven't had enough time to establish a history of borrowing money and paying it back yet. However, if you've got a record of borrowing combined with a low credit score, it may indicate that you need to increase your credit score before applying to borrow again. Whether you haven't had many loans, or maybe made a few mistakes, you can still increase your score over time.


Why should you care about your credit score?

If you have a good credit score, it may indicate to lenders that you can be reliable with managing money.

  • Electricity, gas, mobile or broadband providers will check your credit score before providing services. You'll need to be able to set these up when you have your own flat.
  • Your potential employer might check your credit score as part of their vetting process.
  • Landlords sometimes take credit scores into account when getting new tenants.
  • Lenders may consider a range of variables to determine whether you would be a suitable person to lend to. Banks may consider your credit score when offering you a personal loan, overdraft or credit card.


How to find out your credit score

There are plenty of resources available for you to discover more information about your credit profile. For example, you can request a free credit report from Equifax, a New Zealand based credit bureau.


How to build your credit score

There are a few ways to bring your score up. It usually takes time and good habits. Check below to see if you're on the right track.

  • Pay your bills on time - This is the easiest way to build your credit score
  • Don't make too many applications for credit - Making a lot of credit applications in a short amount of time can suggest to lenders that you may struggle to pay back the amount borrowed

Are you struggling with your loans or bills?

If you're having trouble meeting payments to a lender or company, don't leave it too late and talk to them as soon as possible. They may be willing to help with payment plans or other solutions.

Guides to get you there

ASBBeginners guide to credit scores