OPINION: I don’t know about you, but the summer vacation period is the most expensive time of year for our household.

Maybe you bought tickets to bring the kids home from college (like I did) before jumping into spending Christmas presents and lunch on D-Day and then you went. camping, renting a place at the beach or staying at the house where you entertained the children. Whatever you do, there is always additional pressure on most household budgets.

Whichever way you approach it, the usual rules should apply if you want to avoid adding unnecessary costs to your loan or credit.  (File photo)

123RF / Provided

Whichever way you approach it, the usual rules should apply if you want to avoid adding unnecessary costs to your loan or credit. (File photo)

Luckily (from an expense perspective) it’s behind us for another year, but now for many there’s the problem of dealing with the consequences: paying off those credit card purchases or maybe the loan taken out. to cover everything.

Whichever way you approach it, the usual rules should apply if you want to avoid adding unnecessary costs to your loan or credit: make the required payments before the due date to avoid interest penalties. In the case of credit cards, if you pay off the balance within 55 days, not only do you avoid penalties, but you also avoid interest.

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* Do you want good credit? Be careful when shopping for loans

Either way, you want to avoid having a bad credit score because that’s what will affect your ability to get a loan or credit in the future.

Have ever had credit if you’ve ever had a loan, taken an overdraft from your bank, used a credit card, needed a payday advance, or bought something on hire-purchase, including interest-free offers in The stores.

To get a credit or a personal loan, you must be able to prove that you can repay it. Lenders consider many factors when considering an approval, including your income, savings, debt level, repayment history, and credit rating.

Katrina Shanks says your credit rating is probably the most important thing if you are trying to apply for a loan.

PROVIDED

Katrina Shanks says your credit rating is probably the most important thing if you are trying to apply for a loan.

Even if this is just one factor, your credit rating is probably the most important of them, as it takes into account several things, including how quickly you make payments on loans or loans. invoices, any defaults and the number of times you have applied for credit.

What is a credit score and how does it affect your borrowing capacity?

The first time you apply for a loan or credit (which could be opening an account with a phone or electricity company), the credit provider will do a credit check, which will lead when creating a credit report on one or more of the credit reporting companies. This file includes identifying information such as your name, address, and date of birth.

After that, anytime you apply for a mortgage, auto finance, hire-purchase, insurance, or credit for an electric, gas, or phone bill, the credit reporting companies will get a report from the credit report. lender or provider of credit on the amount borrowed and the credit. limits, as well as monthly reimbursement updates.

These details will be included in your file to be used by organizations to check your creditworthiness when you apply for future credit.

Information about your repayment history can be kept on your file for up to two years, but unpaid debts – when the lender tried to collect the money you owed – can stay on your file for up to five years, even after you have paid the debt in full.

Your credit report will include a score between 0 and 1000 which will allow credit providers to quickly assess your credit risk. Scores are calculated from the information in your credit report. One company describes the score as focusing “on facts related to credit risk, rather than subjective issues such as personal opinions or preferences.”

A high score means that you may get better deals from credit providers, while a low score may mean that you are denied a loan or that you are charged a higher interest rate. Most scores are between 300 and 850. Your credit score depends on your product and your lender. For example, the average scores for mortgage applicants (~ 800) are much higher than those for credit cards or personal loans (550-650).

Here is an example of how a bad credit score can affect the interest rate at which you can borrow: For a loan of $ 2,000 paid off over two years, a person with an “excellent” credit rating can pay interest of only 8%, or $ 171, over the term of the loan; an “average” credit score can mean 25% interest, or $ 562; while a person with a “bad” credit rating could pay a much higher interest rate than this.

Your credit report will include a score between 0 and 1000 which will allow credit providers to quickly assess your credit risk.  (File photo)

Keith Srakocic / AP

Your credit report will include a score between 0 and 1000 which will allow credit providers to quickly assess your credit risk. (File photo)

It is important to know that your repayment history may only be provided and viewed by certain organizations, including banks and finance companies, debt collectors, certain government agencies, telecommunications providers, gas and gas suppliers. retail electricity and insurers. Others, like homeowners and employers, can only access your credit report if you give them permission.

You can verify your information at any time with each of the three credit reporting companies, Equifax, Centrix and illion. If it is in error, such as when it contains credit accounts that you have never requested, defaults that you are not aware of, or credit requests that you have never approved, you can ask that it be corrected. It is important to do this because it can affect your ability to get credit.

It is possible to get a loan if you have a bad credit rating, but because you would be viewed as a risky customer, your choice of lender will be limited and you may be forced to take out a loan with lower interest rates. higher, higher fees, shorter duration and must offer more security.

So how can you improve a low score to make it easier to access lower interest rates?

  • Start by paying your bills on time and keep going

  • Set a budget and stick to it

  • If you’re having trouble keeping up with payments, contact your lender as soon as possible.

  • Fix any outstanding faults as soon as you can. A defect will stay on your file for five years, but the sooner you pay if it’s cleared, the faster its impact will diminish.

  • Apply for credit only when you really need it. Making repeated requests can negatively impact your score as it can be seen as an increased risk. And definitely avoid payday loans and truck loans

  • Get a copy of your credit report on Mycreditfile.co.nz

If you can show that you are able to improve your repayment behavior, then the better your credit score, the more risk you are at and the better your chances of getting a better deal with suppliers, higher interest rates. lower, an extended credit limit and get loans approved faster.

Personally, I’m quite curious about what my credit score shows, so I’ll find out to get mine. It’s also a good prompt to start direct debits so you don’t accidentally miss any monthly payments that might be due.

As always, if you have any doubts, seek advice. Financial advisers can guide you on your best options for your financial future.

Katrina Shanks is Managing Director of Financial Advice New Zealand.

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