I give my two sons a hard time about prioritising boxes of beer above all else when it comes to budgeting, so I decided to ask them and their mates what financial information would be most helpful for them at their stage and age.
Some are graduating from university, while others are embarking on lengthy postgraduate degrees, which means they’ll be students for another five years. They will be navigating a raft of financial headwinds for years to come.
As you can imagine, student debt and how to reduce it are high on the list. I will cover that in a subsequent blog.
The first one out of the gate relates to credit scores and how to improve them.
Great question. Let’s start at the beginning.
What is a credit score?
Your credit score records how well or poorly you manage your money. It includes everything from how much you’ve borrowed, how fast or slow you repay it, whether you pay your bills on time, and whether you’ve skipped or miss repayments.
Why does a credit score matter?
Credit scores matter because they measure your financial creditworthiness and fiscal behaviour. This is important to creditors, landlords and anyone who needs to understand how reliable you are with money.
If you’re chronically late paying your bills, whether that’s a car loan, credit card, rent and/or mortgage payments, power, internet or mobile, or student loan (when it comes due,) your credit score will not be great. And that’s a problem when you want to qualify for a mortgage or even apply for a flat. Low credit scores are a bad look, and you’ll get punished for it, whether it’s a bank or a landlord who chooses someone more reliable than you with money.
What’s my score?
If you’re curious to know what your credit rating is, you can do it for free through one of three agencies: Centrix; Equifax or Illion
Each agency has its own process and timeframes, so check these before you apply, especially if you’re in a hurry.
Although I am a rare prompt payer with no debt, I wanted to see my score. I applied last night and am still waiting on Centrix.
According to most sources, a credit score between 600 and 700 demonstrates that you are creditworthy, i.e., a good candidate for lenders.
Anything below 600 is not so good.
Suppose you’re a graduating student who made a few financial faux pas as an undergrad, i.e., you didn’t pay some parking fines, missed your rent, had a bond withheld, and didn’t make your minimum credit card payments. You are considering taking a much-deserved OE but want a credit card extension on your limit to cover emergencies because your parents have had enough.
Maybe your behaviour has reformed, and you want to improve your score so you don’t get rejected by credit card companies.
Sadly, it’s not that easy to overwrite a poor score if you have gained one.
Your history stays on record for two years.
Worse yet, if you were delinquent in paying a bill, and someone went to the trouble of chasing you down for it via a debt collector, this will stick on your record for five years! And that’s the case even if you end up repaying it in full. It’s a stain that is hard to remove.
How do I improve my credit score?
Sadly, there is no shortcut.
If you are committed to improving your score, you’ll need to do the following:
- Make sure to pay all your bills on time. My habit is setting up autopayments from my account so I’m never late. Bonus: You’ll often be rewarded for prompt payment with a slightly lower rate. NOTE: if it’s an auto-renewal for something you won’t use in a year, diarise that date for cancellation so you are not stuck paying for a service you no longer want, need or use at great expense.
- Pay your fines _ on time!
- Watch for fraud and be vigilant about scams impacting your record and reputation.
- Correct any factually incorrect information on your record, wrong addresses or missed bills you weren’t responsible for.
- If you’re in a relationship that goes bust and you share financials, make sure you unshackle yourself ASAP from joint credit cards, etc., or anything that could bring you down in the eyes of lenders.
- Get help if you need it.
Many people end up kicking their financial woes down the road when they get into trouble financially, which compounds their woes and the money they owe. Neglect, fear, and procrastination are the enemies of personal finance. Seriously.
Stepping out of the student bubble into the real world of financial obligations can be scary, and sadly, most parents or universities do not prepare you for it. Financial hazards and vampires are everywhere. Watch your back.
Banks are only too keen to dangle low-interest credit cards at you or 0% transfer rates that shift to 22% after six months, knowing you are about to be earning money and are naive.
What you don’t know can hurt you financially, so the better prepared you are to fend off the loan sharks, consumer temptations and buy-now-pay-later booby traps, the better you’ll be.
Resources:
Sorted.org.nz Credit Reports
Credit Rating agencies – free reports
Centrix
