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 behavior. 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. Bigtime.
Most New Zealanders know that they have a credit score, but they are less familiar with the potential impact to them and how this score is calculated. In fact, Credit Simple, the consumer site you can check yourself to see your own score, is owned by Equifax, which supplies their subscribers with the information they gather about you, your accounts and your behavior in New Zealand (Equifax is one of the American big three credit bureaus).
My problem with all this is that the system is geared toward selling more credit. If you go to the Credit Simple 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.
Personally, I consider prescreened credit offers a conflict of interest! Why should the monitoring bureau, who is assigned the task of gathering and safeguarding your credit information be allowed to also sell you credit score? They are essentially pulling your score for their own commercial benefit of assessing your rating for types of creditors they also represent. They literally sell those creditors your information on a hot list 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.
If you want the lowdown on how out of control the credit reporting system is in the USA, just click this quote to see John Oliver's shocking rundown. It would be funny if it was not so serious.
UPDATE: I contacted the Financial Markets Authority with my concerns and 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 is coming into effect in stages from 1 July to 1 October which "prohibits credit reporters from using credit information for marketing and direct marketing." In the meantime, Equifax and Credit Simple are behaving like their American counterparts, 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' which 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 counseling 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 this, my team and I are planning to host a Homeviews Workshop on credit dos and don'ts soon. In the meantime, be safe out there!
© 2019 Susan Templeton Niche Mortgages