What is a credit score and why you should care

When you’re exploring options like personal loans, unsecured loans, or wondering how to apply for a personal loan, your credit score is one of the most important factors in the process. Understanding your credit score and how it affects your borrowing power can save you money, avoid surprises, and help you qualify for better personal loan deals. Let’s unpack exactly what a credit score is, how it works in Aotearoa, and why it really matters for anyone looking for a personal loan in New Zealand.

What Is a Credit Score?

A credit score is a numerical representation of your creditworthiness. In New Zealand, credit scores typically range between 0 and 1,000 (though scales may vary slightly among credit reporting agencies). It’s based on your credit history, how well you’ve managed debt repayments, and how much debt you currently carry.

Credit reporting agencies in New Zealand such as Equifax, Centrix, and Illion collect information about your financial behaviour. This includes your credit accounts, the age of accounts, any defaults or late payments, and whether debts are in or out of collection.

Lenders, banks, telecommunication companies, utilities, and other credit providers use your credit score to help assess your risk level: whether to lend to you, under what terms, and at what interest rates. The stronger your credit score, the better terms you’re likely to be offered.

How Do Credit Scores Work in NZ?

Here are the key factors that credit agencies and lenders look at when calculating your credit score in New Zealand:

• Payment history: whether you’ve made on-time repayments for previous and ongoing loans or credit accounts,
• Credit usage / total debt: how much credit you currently owe relative to your borrowing limits,
• Account history / age: how long you’ve held credit accounts,
• Types of credit: a mix of secured, unsecured, revolving credit, etc,
• Credit enquiries & applications: recent applications for new credit (e.g. applying for a personal loan),
• Defaults, bankruptcies, or debt collections: any past serious credit events.

If you miss repayments, default, or fall behind on obligations (e.g. 30+ days late), these events are recorded and will negatively impact your credit score. Over time, consistent good behaviour (on-time payments, low balances, responsible use of credit) helps build a stronger score.

Why Credit Scores Matter for Personal Loans

New Zealand lenders have an obligation to check your credit score as part of their approval process. Here’s why it matters:

1. Loan eligibility
   A higher credit score increases your chances of being approved for unsecured personal loans. If your credit score is weak, lenders may decline your application or require extra checks.
2. Interest rates & fees
   Your personal loan interest rates often depend on your level of credit risk. A strong score could earn you a lower rate, while a poor score can lead to higher APRs, additional fees, or restricted loan terms.
3. Loan amounts & limits
   Lenders may limit how much they are willing to loan you based on your credit score. With higher creditworthiness, you can access larger loan amounts or more favourable repayment plans.
4. Speed & convenience
   For fast & simple online loans, a good credit score can streamline the personal loan approval process: less paperwork, fewer checks, and faster approval. If your score is shaky, lenders may require further documentation or hold up the decision.
5. Negotiating power
   When you’re seen as a lower-risk borrower, you have more leverage in negotiating better terms or special offers. Lenders are more willing to be competitive if they know you will be a reliable client.

How to Check Your Credit Score in NZ

To make informed decisions, you should regularly access your credit report and credit score. In New Zealand:

• You can get a free copy of your credit report from credit reporting agencies (Equifax, Centrix, Illion),
• Through government-endorsed tools or portals, you may also be able to check your credit score or report,
• Many lenders and online personal loan platforms offer a “soft check” of your credit (this doesn’t affect your score) so you can see whether you qualify for a loan or what rates you might get.

Knowing where you stand lets you take steps to improve your credit score, reduce risk, and approach credit providers with confidence.

Tips to Improve or Protect Your Credit Score

If your credit score isn’t where you’d like it to be, here are some strategies to build and maintain a healthier credit score, especially if your goal is securing a personal loan or unsecured loans:

• Pay on time or early (punctual repayments are critical),
• Reduce or manage outstanding debt (keep balances low relative to available limits),
• Avoid opening too many new credit accounts in a short period,
• Maintain older accounts (credit history length helps),
• Handle defaults or collections promptly (resolve any outstanding negative items),
• Check your credit report regularly for errors or discrepancies, and dispute any inaccuracies.

Over time, these steps help to enhance your creditworthiness, enabling you to access better personal loan offers. 

Nectar Money also offers you the ability to apply for a Credit Builder Loan, a short-term, interest-free way to grow your credit profile (without the stress). We offer you a small loan for a short time period. If your application is accepted, your on-time repayments will be reported to NZ credit bureaus to help you grow your credit profile. 

What to Consider When You Apply for a Personal Loan

When you’re ready to apply for a personal loan, here are key points to keep in mind to ensure you get a good deal:

1. Compare interest rates & fees
   Search for lenders offering the best personal loan interest rates. Compare APRs, fees, and terms. A small percentage difference in interest can amount to substantial savings across the life of your loan.
2. Unsecured vs Secured Loans
   Unsecured loans don’t require collateral (e.g. no asset security), but typically depend heavily on your credit score and may carry higher interest rates. Secured options might allow more flexibility but put your asset at risk if you default.
3. Loan term & repayment flexibility
   Choose a loan term that you can manage in terms of payment amount and frequency. Shorter terms reduce total interest. Also consider whether the lender allows early repayment without penalty.
4. Transparency & trust
   Use lenders that clearly disclose their terms, fees, and personal loan interest rates, with no hidden costs.
5. Speed & convenience
   Many fast and simple online loans let you apply quickly online or on your mobile, sometimes receiving approval within minutes and funds within hours. But speed shouldn’t come at the cost of poor terms. Make sure you read the fine print to balance convenience with fairness.
6. Lender reliability & reputation
   Go with licensed or registered lenders that follow New Zealand’s consumer finance rules. Look for reviews, complaints, or regulatory compliance.

Why You Should Care About Credit Scores

If you intend to borrow in NZ, for a car, home improvements, emergencies, or general expenses, a good credit score is central to getting favorable terms. A strong credit score leads to:

• Better chance of approval for personal loans or unsecured loans,
• Lower personal loan interest rates,
• Access to larger amounts or flexible terms,
• Faster, more streamlined personal loan application process,
• The ability to compete for offers from lenders advertising the best personal loan or fast & simple online loans.

Caring about your credit score isn’t just about preparing to borrow, it’s about financial control, savings, and peace of mind.

Personal finance advice

Unsure of how to manage your money? You can access free personal finance services or pay for professional personal finance advice.

How much can you borrow with a Nectar Money Personal Loan?

With Nectar Money you can borrow unsecured up to $40,000, or as little as $2,000. Use our loan repayment calculator to find out how much you could get.

Getting started with Nectar Money

Do you need a great rate on a personal loan? We’d love to help with your personal loan requirements. Find out how much you could borrow and learn more about our personal loans. You can get started with Nectar Money and get a personalised loan quote online which will include your interest rate, maximum borrowing amount and repayment options.

Nectar Money – we make lending sweeter.*