Shopping around for credit or switching power companies often? Your credit score may suffer.
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Consumer member Rose Martin* didn’t know online lender Harmoney had run a credit check on her. Rose only found out when she re-fixed her mortgage and it showed up on her credit file. Six months later, she’s still fighting to get it removed in case it affects her future chances of getting a loan.
Every time a company runs a credit check it goes on a file held about you by credit-reporting agencies such as Centrix, Equifax (formerly Veda) and Illion (formerly Dun & Bradstreet).
These agencies collect and hold personal information on you for up to 5 years. Banks, lenders, utility providers, insurers, landlords and employers can pay to access this information to see if you’re a credit risk – and whether they want to do business with you.
Maintaining a sparkling credit score isn’t just a matter of keeping your financial slate clean. The more credit checks you have, the more likely companies are to turn you away. Multiple credit checks in a short period are seen as a sign of “credit distress” – in other words, you’re having trouble paying your bills.
But the problem is these checks can go on your file even when you’re just inquiring about a product.
After filling in a form on Harmoney’s website thinking she would get information on the company’s rates, Rose ended up with a credit check on her file. Harmoney’s terms and conditions (on a separate webpage) disclose it runs credit checks but Rose hadn’t seen them and didn’t realise this was required.
Even changing phone or power companies regularly can negatively affect your credit file. That’s a concern considering there were 440,000 switches by electricity customers last year. Every time you swap providers, the new company is likely to run a credit check and this is recorded on your file.
One Consumer member had two credit checks less than a month apart on his file. He first signed with one internet provider that didn’t inform him it couldn’t supply his fibre-connected new home. The next company also ran a credit check.
Equifax and Illion say that multiple checks over a year or two lower your credit score, though Centrix says these have no impact.
Credit reporting is controlled by a code overseen by the Privacy Commissioner. We asked the commissioner’s office if it would look at ways to protect people’s credit scores from being affected if they regularly switch utility providers. Assistant privacy commissioner Blair Stewart says he’ll investigate the issue.
He says changes to the code, such as reducing the time information stays on credit files, are an option.
In response to our inquiries, Electricity Authority chief executive Carl Hansen has written to the credit-reporting agencies requesting information on their practices.
“Electricity consumers should not be discriminated against for being savvy and switching to a better power deal,” he says.
The damage done by shopping around for credit or switching electricity companies can be offset by other information the credit-reporting agency holds on you.
According to an Illion spokesperson, if consumers pay their bills on time “this should be reflected in their score, most likely more than cancelling out the effects of any additional inquiries”.
Since 2012, both positive (paying bills on time) and negative (such as defaulting on loans or declaring bankruptcy) information began being passed on to credit-reporting agencies. At the same time, defaults under $100 were wiped from your credit file.
But, in practice, not all companies are providing information about your bill payments. Some banks, finance companies, power providers and telcos are still introducing systems to pass this data on to credit-reporting companies.
In April 2018, three-quarters of adults had at least some payment history on their file, according to Centrix.
Since 2012, banks and other credit providers have been able to run a “quotation inquiry” on you when you’re shopping around for credit. This gives them access to your financial information, but the inquiry shouldn’t be used in creating a credit score.
However, few lenders are making use of these inquiries. Mr Stewart says the Privacy Commissioner’s office is “very disappointed” this is the case. Equifax, Centrix and Illion don’t use quotation inquiries in their calculations.
Credit providers must tell you if they’re planning to run a credit check on you. If you’re shopping around, ask if the company will do a “quotation inquiry”. Avoid a full credit check until you’re sure about the purchase.
Centrix now gives customers their credit score when they request their credit file. Previously, the only way to get the score for free was to sign up to Illion’s Credit Simple, but this service comes with a catch.
By signing up, you agree to get loan offers from banks and other lenders. For a commission, Credit Simple lets companies make credit offers based on your credit score, though customers with low or zero credit scores only receive a link to free budgeting help.
Some advertised offers are from banks, but others are for unsecured loans or credit cards. You’ll be regularly emailed offers and promo deals until you unsubscribe.
You may be better off waiting 10 working days to get a no-strings-attached score from Centrix. To get your Equifax score, you have to pay.
We think it’s unfair for consumers’ credit scores to be adversely affected just because they regularly switch to take advantage of competitive power or telco deals.
We’ve written to the 3 credit-reporting agencies, advising them we support the Privacy Commissioner’s and Electricity Authority’s investigations into the impact of switching on credit scores.
We also want lenders to be upfront with customers and make it clear when their inquiries will result in a credit check. This information shouldn’t be buried in the fine print.
Three: Centrix, Equifax (formerly Veda) and Illion (formerly Dun & Bradstreet). They’re required to comply with the credit-reporting code issued by the Privacy Commissioner.
Your credit file contains the information each credit-reporting agency has gathered from banks, finance companies, utility providers, court records and publicly accessible databases. You can request a copy of your credit file for free from credit-reporting agencies. However, if you want a copy urgently, you can pay to get one fast-tracked, costing either $5 (Centrix) or $10 (Equifax, Illion).
Your score is an evaluation by a credit-reporting agency: Equifax and Illion score out of 1000, Centrix out of 1500. This number represents how your credit risk measures up against other New Zealanders.
We recommend asking for a copy from the 3 agencies every 3 to 5 years. If you regularly buy on credit, or rent and frequently move, it’s worth checking more often. Review your file for errors before you apply for or re-fix a mortgage, as even small issues can affect a bank’s decision.
If your credit file has an error, ask for a correction immediately and in writing. Set out your reasons clearly and provide evidence where possible.
If an error has led to debt collectors calling, tell them the debt is in dispute. Take notes of the date and time of any calls and to whom you spoke. These records will be useful if there’s an argument over who said what.
If you believe you’ve been a victim of identity theft or fraud, ask to freeze your credit file. Credit-reporting companies can freeze your credit information for 10 working days (Centrix extends this to 20). You can ask for the freeze to be extended but companies can refuse if they believe on reasonable grounds there’s no risk of fraud.
If you can’t resolve matters, you can complain to the Privacy Commissioner. If you disagree with the outcome, you can take your case to the Human Rights Review Tribunal.