Credit scores are one of the main personal factors used by lenders when assessing your loan application for approval.
Your credit score is also used to determine the loan limits available and the rate applied to your loan, so understanding where you sit on the credit score ladder can be a valuable tool when assessing the strength of your application before applying.
An excellent credit score is the most valuable when applying for a personal loan, but certainly not essential. Even an average credit score can still be a positive sign to a lender, provided you have sufficient documentation and evidence of recent positive financial behaviour.
If your credit score is lower than you expected, don’t be alarmed. The good news is that it’s pretty simple to improve your credit score over time, and the great news is that there are some actions you make immediately to improve your score before applying.
There are three credit bureaus in New Zealand you can contact to request a credit report:
Your credit report will outline any positive and negative actions that have affected your credit score. If there are any errors in the report, you can request they be removed by contacting the credit agency.
Credit scores in New Zealand range between 0 (the lowest) and 1,000-1,200 (the highest) and are calculated by separate credit agencies that assess your financial behaviour throughout your lifetime.
You can still apply for a personal loan in New Zealand regardless of your credit rating.
However, as it is a crucial piece of information used to assess your risk level as a borrower, it’s important to understand how it affects your chances of approval, your access to finance limits, and the rates you’ll be offered:
A perfect credit score prevents the least concern to a lender and offers the highest chances of approval based on your score alone. A perfect credit score usually means you’ll have your pick of lenders and access to the lowest rates and most favourable terms available.
A credit score above 800 is almost the same as a perfect score, as this range represents a stable credit history and responsible actions over time. Lenders consider this almost on par with a perfect score, which means you’ll also have access to the widest range of options at some of the most competitive rates and terms on offer.
If you’re in the 700-799 range, your credit score won’t likely be the deciding influencer on loan approval, provided you can illustrate an ability to repay the loan amount. You may have to find other ways to improve your application to get the best rates (such as offering collateral on the loan), and the most important aspect in the range is avoiding a declined application and a hit to your credit score as a result.
Average might not sound that great, but lenders generally consider this a reasonable credit range when applying for finance. Provided you haven’t had any serious credit events (like a history of defaults on previous loans) then you’ll still be able to access a reasonable number of loan options and negotiate decent rates and terms with a number of lenders in New Zealand.
A credit score between 300 and 499 is considered fair or below average, which means it’ll be harder to get approved for higher loan amounts and it’s unlikely you’ll be able to access the most competitive rates on offer. This could be the result of previous financial decisions (such as defaults or bankruptcy), but also may just reflect younger borrowers without any established credit history to assess their score.
A low credit score between 0 and 299 isn’t a great place to be when applying for a loan. You may need to provide a guarantor to gain approval, and your options will be limited compared with borrowers in other credit score ranges. However, if you can improve your credit score for a few months before applying, you’ll be able to increase your chances of getting approval from a lender by showing responsible financial behaviour.