Credit scoring


#1

A very recent Veda check shows a credit score of 648. That is interesting because I expected it to increase after an ‘issue’ had dropped off but not by that much. Still, I am not complaining. Mid 600’s is a fair way into the green zone and I expect woud be considered a reasonable credit risk.

I don’t have any borrowing (outside of a student loan) and none of my bills report to Veda (which is good). Is it reasonably possible to go any higher without credit?


How Credit Scoring works
#2

To know exactly how many points you gain or lose is to have to obtain the credit report score before and after an event occurs on your credit report. Which of course can get costly. On my report I gained a few points when Veda changed an incorrect credit card limit from 40,000 to 4000.00. When entries fall off yes you do gain points back.  Vedas score formula is very complex and protected by intellectual property . Whether you gain back what you lost is unknown but I haven’t heard of anyone having a score close to a 1000.
I’m still finding out how the credit score is affected by the age of the credit file. In my case I’ve had my credit file age three years in a couple of months. Veda advised that it was because when they updated their systems they linked historical data to the report which affected the aging. I believe that ageing or the historical data that caused it, lowered my credit score substantially. Assuming that when the age of the credit file clocks over into another year you lose points. I’ve had conflicting information from Veda customer services one saying that you gain points when the ageing of the credit file increases and another saying you lose points. As long as nothing else has occurred on my credit file since my last report, the next one I obtain will be in the next report year so I’ll know whether the age of the credit file increases or decreases the score.
The only things I know that will increase the score (excluding incorrect entries being correct) are when items fall off them after 5 years or an item is removed. Whether you gain back the original points lost when the entry was first listed, or extra points is unknown. Also if you have a default listed, you will gain back a few points if Veda mark it as disputed.
In Oct 2012 my score was 660 today its below 400.
The important thing (for me) is I don’t want anything reducing my credit score. My beef is, I have no right to know how many points I’m going to lose when I apply for credit or open a bank account, if my credit score is checked.
Banks will reject an application for lending if a credit score is too low or below their threshold. I have proof of that from two banks.
A seminar I went to last year the presenter reckoned you won’t get lending for a mortgage if your credit score is not around the 800 mark. He stressed the importance of Veda’s credit scoring system and how it can impact whether you obtain lending or not.
Not everyone subscribes to Veda. It’s a good idea to check the other two credit reporting companies.
Under the privacy act credit reporters can have a system called comprehensive credit reporting, whereby your history of payments are retained over the last two years. If you are even one day late in paying on time a mark on the graph will show that. I don’t think these have any affect on a score, I think they are just there to show whether you pay your bills on time to the people that subscribe to the service.
If you have a GEM visa card you will see this graph. Also ASB overdrafts will show there also. I paid off and closed my overdraft with ASB because it appeared as a comprehensive listing on my Veda report.
From a consumer point of view, credit scoring is completely unnecessary and takes away free choice. If I want to have lots of bank accounts or lendings with different banks and they all do credit checks as part of their policy, then all those enquiries are going to be a negative entry against me and lower the score. That restricts freedom of movement. Credit scoring is not regulated by government. So there is no legally required checking process or any testing required to ensure the system is not being manipulated or abused. It is also protected by Intellectual property so the scoring formula can remain hidden.


#3

I would expect the score to increase with age. I think this would go some way towards explaining why the young person you mentioned in a previous post had a mid 500’s score. I doubt there is many points, if any, lost with a check unless there is substantial lending involved or several checks involving lending in a short space of time. I had another bank do a check since (opening account / no lending) and a check from BNZ (merchant services for company) and the score still increased by close to 300 points in that time.

800 points does seem a bit high but not surprising. A credit union would probably be a lower bar but I know they do not provide lending if any defaults listed.

I would expect your score is at that level due to a combination of defaults listed, their recentness and ongoing action in respect of these.

I have considered applying for a credit card with a low limit to see if that gets me over the 700 mark after a few months. BNZ sent me a whole pile of paperwork for this and I put it in the ‘too hard’ basket. Only a couple of years ago, I was offered a credit card with no paperwork by BNZ. As usual for banks they seem to be a bit all over the show.


#4

What a comprehensive and eye opening run down… I never knew, thanks now i do!


#5

Interesting.
In March 2014 my credit score was 602 and the age of the credit file 16years. Just one month later April 2014 I had one default listed by a bank for $800.00 not in dispute. The score had fallen to 333 and the age of the credit file is now suddenly 19years. No other entries had been added or removed but the report layout had changed.
Today I now have three defaults listed. The last default was listed by a debt collection company for $6,000.00 a check of the score before and after showed a loss of only around 40 points.
Huge difference.

Yes I do have several entries in short space of time which may have impacted the score more than normal.

Regarding paper work. A disputes tribunal referee can make an order against someone without any written contract having been in place between a consumer and a bank. A banking relationship is regarded as being contractual in nature. In my case because there were no terms and conditions that I had signed with the bank, I said yes to the question of do I have a credit card with the bank and I also agreed to an amount with the bank to pay. My verbal agreement was all that was required for me to end up with an order against me and with two weeks to pay the amount in full. It also meant that the Referee could dismiss entirely my counterclaim and a new “contract” was formed with the bank.

The standard terms and conditions that the bank issues from time to time do state that as soon as you use the card, you are deemed to have accepted their terms and conditions.
The important parts of a contract or terms and conditions, are the parts that state what happens to the outstanding debt when it is in default and who pays the cost of collecting the debt. How is it treated, for instance -  do the banks just ask an agent to collect it on their behalf or do they actually onsell it. Those two things are very different legally and can have tremendous consequences to the outcome of a dispute.

Also look for clauses that state whether the bank or creditor can charge interest and collection costs and how much they are. My research has shown that debt collectors will add substantial costs to an existing debt that they would not be legally entitled to claim.
Unfortunately the collection industry is not regulated by government. There is no entry for anyone even becoming a debt collector. This is one reason why I believe people are being taken advantage of. There are no standards or rules that debt collectors need to abide by. There are loopholes with our laws that I believe are being exploited. The outcome of course is more debt against the consumer to pay.

An interesting side note, I was speaking to a bank and they were of the opinion that the reporting guidelines as outlined in the Anti Money Laundering Act Section 49(3) don’t actually apply to outstanding debt. I queried this with the banking association and they had no opinion on it.

My message:-
Whatever documentation you get from the bank, keep it and guard it with your life. Forget the seven year rule, if you have outstanding debt. Keep all paperwork including receipts, statements etc for at least as long as the debt is owed. You’ll spit tacks if you find you tossed them out when the collectors come knocking. Paperwork has a magical way of disappearing.
Today with modern technology you can scan documents to a computer. Just make sure though that you do keep paperwork for anything that has a “wet ink” signature.