How Credit Scoring works


#1

Continuing the discussion from Credit scoring:

It was 1972, when we acquired our home, that I was exposed to the myriad of bills and mortgage, that a property owner and family has.
From that time to this I have never missed a payment nor been late in making a payment nor have any debt, and have never been concerned as to what sort of a credit rating, if any, I might have had but, reading the Bank Community news it appeared to be something that one should check on.
I recently checked on Credit Simple to see what my rating was and was a bit dismayed to find that it was 738 out of a possible 1000 and whilst the comments were “Superb” I have wondered what sort of a financial record one had to have to score maximum points?
I have no doubt that if I had scored 74% in my maths test at school the maths teacher would definitely not have rated my efforts as “Superb”


#2

738 is great so don’t worry about it.

Credit scores are not just comprised of previous payment history but also how much credit you have available and other demographic factors - some of which are beyond your control. These could include age and where you live.

I wouldn’t look at it as a linear scale because the higher you get the harder extra points are to get. Therefore mid 700’s is certainly considered credit worthy. By comparison 600+ is the ‘green zone’.

If you want to increase your score I’d suggest you take on extra debt.

They use the D&B database [1]. Veda has their own scoring system out of 1,000.

I signed up and had a look and the score they gave me was quite a bit lower then Veda’s. I expect this is because most credit checks are done through Veda. Furthermore, none of their explanations for the low score are relevant. I have modest debt, no defaults, payments up to date etc. I recently applied for and was granted lending with the BNZ.

They have this to say in their FAQ: [2]
My credit score is a shocker. How did that happen?
You can end up with a bad score for many reasons, such as if you fail to pay your bills, if you apply for credit too often, if you’re a bad tenant, and even if your partner defaults on a debt that also has your name on it. Your score is determined by how you pay your bills. People who have clear evidence of paying their bills on time will have higher credit scores than people who regularly pay their bills late or not at all.

In other words - it’s not about whether you pay your bills on time (I certainly do) - it’s about whether your suppliers/creditors report to D&B, which in my case most of them don’t.

Under “credit report” I only saw 1 check in the previous 2 years for mobile phone services, however, absent are the following:

  • Other mobile phone company
  • Home delivered gas account
  • Business fuel account
  • Bank (x2 or x3)
  • Other bank

so therefore their picture is obviously limited and this will almost certainly account for the below-par score. None of the above listed (or any) negative issues apply to me.

I would strongly recommend you look at the Veda information. Unfortunately, while you can get a credit report for free from them [3], you will have to pay for the score. What I have done previously is get this information from the supplier/creditor at the time of applying for a new account.

  1. Credit Simple - About Us

  2. Credit Simple - Frequently Asked Questions

  3. Veda - My Credit File Standard