As the world economy begins to recover from one of the steepest economic downturns in recent decades, many consumers are finding themselves with greatly reduced credit scores and credit histories. Negative marks on a credit report can have damaging effects on a consumer’s financial future, making virtually every financial tool and lending product more expensive than it would be with a better credit score and a more favorable financial reputation.
The good news is that, just as a credit score can be easily lowered, it can also be easily fixed with a few prudent steps and considerations. New Zealand consumers who have found themselves with a worse credit reputation in recent months can easily pursue the road to recovery by following the country’s fair credit reporting laws and privacy regulations.
Bad Credit: Where it Comes From
Before pursuing a fix for bad credit or a lowered credit score, it’s important to understand how things got so bad in the first place. Consumers develop credit over time when they begin engaging in lending products as an adult. Typically, these lending products begin with relatively low-limit credit cards during young adulthood. Depending on how a consumer handles these credit products, they may qualify for higher credit limits, personal or car loans, and even a home mortgage.
Each successive credit product used by the consumer is logged on their credit report. Timely payments are positively noted on this credit report, and they’re rewarded with a slightly higher credit score that can lead to lower interest rates and better lending terms. Missed payments have the opposite effect, lowering the credit score and highlighting a consumer’s perceived risk to banks and other financial institutions.
To get a poor credit rating, consumers must treat their lending products poorly. That means missed payments, high balances, and a failure to keep up with the terms and conditions agreed to when the product was first used.
Credit is Primarily a Tool Used to Determine Risk
Like it or not, credit is all about risk. A consumer who maintains several credit cards, a vehicle loan, a home mortgage, and a personal loan, without missing a payment, is considered a less risky proposition than one who routinely misses payments, runs high balances, and fails to follow the terms set in their agreement with the bank. When banks perceive this risk to be elevated, they punish that risk by either charging the consumer a higher interest rate or refusing to service them at all.
Higher interest rates can be particularly expensive for consumers, as it means the cost of borrowing rises exponentially with each increased interest point. A flat-out denial of credit can be even more costly, as a loan can often help to stave off the effects of unforeseen expenses or other unfortunate events. For this reason, consumers should pay attention to their lending practices and payments, ensuring that their risk is minimal. A higher credit score is simply less risky and less expensive for everyone involved.
The Key to Good Credit is Monitoring and Repair
The best way to guard against the long-term risks and negative effects of bad credit is simply to be informed. In 2004, the New Zealand government passed legislation that guarantees consumers access to a free credit report each year. This legislation, known as the Credit Reporting Privacy Code of 2004. It compels the two major credit reporting agencies in the country, Veda Advantage Limited and Dun & Bradstreet, to provide consumers will their full credit report upon request. This is done in a rather slow and antiquated way, however, and some consumers may wait for as long as three weeks before their credit report arrives in the mail.
After the credit report has been ordered and delivered, consumers need to open the envelope and thoroughly understand every single item that is listed in the report. This is the time to check for fraud, inaccuracies, and misstatements, which may negatively affect a credit rating or the ability to gain access to common credit or lending products. Identity theft incidents are on the rise in New Zealand and around the world, and an increasing number of consumers have found inaccuracies or fraudulent accounts on these free credit reports.
After checking for accuracy, it’s important to determine which accounts can be easily remedied, paid off, or settled. This is the key way to rebuild a credit reputation and regain the confidence of banks and other lenders. Proactively pursuing past due accounts, and those that have been charged off, will help to paint a much less risky picture of consumers when they next apply for a credit product.
Consider Debt Consolidation or Debt Settlement for Credit Improvement
If the free credit report received in the mail contains a high number of past due accounts and charged off balances, it might be time to consider a bigger solution than merely paying off those debts in full. For New Zealand consumers in serious debt, and with many negative notations on their credit report, debt consolidation or debt settlement may be the best choice.
When debt consolidation is pursued, a third party typically represents the consumer and interacts with their creditors. Those creditors are offered a partial payment of the balance, which is made to them as soon as they agree to the terms of the payment amount. Consolidation companies will try to get the most favorable deal for the consumer they represent, but will accept less favorable offers in the interest of settlement and consolidation. All of the consolidated accounts are then merged together, creating one balance that is paid off on a monthly basis by the consumer. Collection calls and negative credit marks stop, and rebuilding can begin.
Debt negotiation, conversely, is when the consumer calls up their own creditors and arranges for a structured repayment plan that will satisfy the balance, stop the negative credit reporting, and put an end to any ongoing collection activities. It’s a great way for consumers to rebuild their credit and manage their own payments, and it’s increasingly popular among debtors in New Zealand.
Plenty of Ways to Restore Credit Health and Fiscal Sanity
With the guarantee of free credit reports, and the wide number of tools available to pay and settle debts with creditors, consumers saddled with bad credit can find freedom from creditors in relatively few steps. With careful attention to detail and proactive pursuit of settlement, debts can be eased and credit can be fully restored.