Six credit score myths - busted

/ Credit File

Is a credit score the same as a credit file? Does your credit score determine if you get approved for a loan? We bust the top six credit score myths!

Myth 1: My credit score is the same thing as a credit history or file

Your credit score is a number that reflects the activity on your credit file. It’s a quick measure of how credit worthy you are, but the activity on your credit file or history is what determines this score. Your credit file includes more comprehensive information (24 months’ worth) such as applications for credit, credit accounts, recent repayments, and any defaults. Your credit file is usually created the first time you apply for credit or default on a payment, or where public record information is created about you. You can get a free copy of your credit file with Equifax.

Myth 2: Credit scores only matter when I want to take out a home loan

Your credit score is a handy snapshot of your credit worthiness that enables anyone who’s extending credit to you to ensure that you’re able to meet your payments. Whether it’s financing a car or applying for an overdraft, lenders have an obligation to lend responsibly and they do that by using your credit file. Additionally, your credit file can be used by potential employers for certain roles (with your permission) to ensure you’re financially responsible.

Myth 3: Myth: My credit score focuses on negative things about me

Your credit score is a number that reflects positive and negative credit behaviour. New Zealand’s commitment to comprehensive credit reporting means that lenders can see your repayment history for each line of credit over a 24 month period. If you’re making repayments on time, lenders can see that positive behaviour and reward it accordingly. Likewise, if you have a default on your file, lenders may still extend credit if they can see that everything else is in order. They may, however, charge a higher interest rate.

Myth 4: Credit bureaus use data like my marital status, gender, and nationality to determine my credit score

Your credit score reflects your positive and negative credit behaviour along with your history of repaying any credit; it does not factor in marital status, gender, or ethnicity. Whilst salary and a combined income may be used by borrowers to assess your ability to make repayments, they are not part of a credit score.

Myth 5: My credit score determines whether I’m approved for a loan

Your credit score is a reflection of your financial health at any one point in time. Whilst it may be used by a lender as part of their decision making, they’ll also look at other information. For example, the amount of debt you can reasonably manage, given your income and your employment history. That means that some people with a low credit score may still qualify for credit and some with a high credit score may be declined.

Myth 6: It's way too difficult to dispute the information on my credit file

If you see information on your Equifax credit file that you believe is inaccurate or incomplete, you can contact Equifax who will investigate the correction request with the relevant lender. Alternatively, you can contact the lender or creditor directly to correct any error and remove it from your file. If it’s not resolved by a lender, you can file a dispute online with Equifax.


Why you should love your credit score

Getting to know and love your credit score means you’ll feel more in control of your money and better equipped to make smarter financial decisions. It also means you’ll be better prepared to deal with any unexpected bills that come.

And if you’re wondering why you should care – then consider this example: the difference in total interest repayments on a $20,000 car loan over a five-year period, at a seven percent interest rate and an 11 percent interest rate, is around $2,330. Securing the lower interest rate will to a large degree depend on your credit history.


Want to know a little more?

Equifax 5 tips for a better credit file

  1. Get a copy of your file.
  2. Have a budget and follow it.
  3. When you sign up for a loan, be aware that it is a contractual commitment.
  4. Make payments on time.
  5. If you get into trouble, contact your lender early.