Is Your Credit Safe in New Zealand?
CLICK PHOTO to watch John Oliver's exposé.
Credit reporting is increasingly becoming a fact of everyday life. Employers, landlords, car dealers, insurance companies, payday loans, business creditors, department stores, and banks routinely run credit checks to consider your trustworthiness as a customer or employee - even though there is no research to suggest that your credit impacts your performance at work or can predict a likelihood to commit fraud.
NEWSFLASH: Banks check your credit each time you apply for a loan, credit card or to top up your mortgage and most check your account routinely for changes in behaviour. The number of times your credit report is viewed by one of these creditors impacts your score negatively, as a signal of risk. So anyone going from bank to bank or car dealer to car dealer could potentially be lowering their score and signalling higher risk. Bigtime.
John Oliver's shocking takedown of the Credit Report system would be hilarious if it wasn't so serious.
Most New Zealanders know that they have a credit score, but they are less familiar with the potential impact on them and how this score is calculated. In fact, Clear Score, the consumer site you can check yourself to see your own score, is owned by "a group of companies", including Illion, an Australian-owned credit data company, which supplies their subscribers with the information they gather about you, your accounts and your behaviour in New Zealand (as does Equifax in the USA).
My problem with all this is that the system is geared toward selling more credit. If you check the Clear Score site to see your score, you will immediately be shown a list for numerous 'offers of credit' after you enter your data. They are literally prescreening you for those creditors. Those creditors pay them for data analysis to determine the best clients for their products. Tip: DO NOT enter your phone number on the Credit Simple site if you want to sleep at night. An interesting point is how banks see your use of interest fee systems like Layby and Afterpay. Because they involve lump sum payments, assessors see this as 'regular' and penalize you accordingly. This suggests they resent your using services that don't pay them interest. Weirdly, the "buy now, pay later" credit contracts are not currently covered by the CCCFA, even though these schemes are rife for overuse.
Since writing first this blog post in 2019, the stakes were raised by our new NZ CCFA Credit Contracts and Consumer Finance Act designed to protect consumers and this sounds good for consumers. The system puts more responsibility on Advisers to ensure that you borrow within your means. Lenders have systems to alert responsible lending red flags that highlight habitual patterns like gambling or late payments. Just know that everything on your bank and credit card statements is being considered in light of your application for credit. Seriously, some assessors consider online video games in a negative light so you can imagine how they see trips to the casino or Lotto tickets. Advisers like me must present 3 months of all bank, credit, loan and asset statements and cross-reference your spending patterns with extensive diary notes to the lender when we submit every application. Loads of fun for everyone.
The Credit Contracts and Consumer Finance Act (CCCFA) Act is designed to insure that you are able to make informed choices, that you understand fully what you're agreeing to, and that you can keep track of your debts and make payments of the money you borrow.
Personally, I consider prescreened credit offers a conflict of interest! Why should the monitoring bureau, which is assigned the task of gathering and safeguarding your credit information, be allowed to also sell your credit score? They are essentially pulling your score for their own commercial benefit of assessing your rating for the types of creditors they also represent. They literally sell those creditors your information on a hotlist of likely candidates of good borrowers. If you have a low score, you can expect less exciting options, like payday lenders (ugh!). I know this sounds as bad as it is. Consumers should be concerned about these financial practices now permeating New Zealand business.
When I first contacted the Financial Markets Authority in 2019 with my concerns, they referred me to the Commerce Commission, who referred me to the Office of the Privacy Commission. On the Privacy Commission's site, they state a new Code came into effect in October 2019 which "prohibits credit reporters from using credit information for marketing and direct marketing." Unfortunately, Credit Simple (now Clear Score - the new iteration) is behaving like their American and Australian counterparts by selling you superfluous services you don't need, which is to say, as John Oliver illustrates, not great.
Did you know that when you apply for credit it has the very likely potential to lower your credit score? When you then click the link to those prescreened credit offers and apply for a new credit card or car loan, for example, that is another 'hit' that signals risk, which in turn lowers your score. In my experience, when a bank sees multiple credit checks by different banks, and I then submit that client's loan application, they immediately ask me why. They see which bank you went to before you came to me. The credit assessor will ask me to verify if you have taken on new debt. I am also aware that they may suspect that you have been turned down for credit.
Multiple inquiries = multiple 'hits' on your score, thereby lowering your overall score. Since mortgage brokers typically do not run multiple credit checks, we save you that hassle. You can easily avoid this problem by going to one financial adviser or broker who will escort you to the right bank without lowering your score when you need it the most.
Sadly, after a decade of writing blogs and counselling clients on this subject in the USA, I'm very aware of the downsides of the credit reporting system and how difficult it is to protect yourself against incorrect data and errors on your file. The lack of oversight is appalling.
In light of all this, I suggest you join us at a regular Homeviews Workshop where we cover credit dos and don'ts. In the meantime, be safe out there!
© 2021 Susan Templeton Niche Mortgages