The news that landlords will once again be able to claim tax deductions for interest on rental properties, as well as changes to the bright-line test, means that the housing market is likely to shift again.
Those with skin the game – their own home, investment properties and/or mortgages being actively managed – might be familiar with assessing such vagaries of the market, keeping a weather eye on Reserve Bank OCR decisions, noting how banks respond with movements in mortgage rates, and staying alert to any signs of how the new government’s legislative programme might impact the market.
However, for those wondering if they’ll ever be able to afford a home, it can seem like a degree in economics or the intuition of billionaire investor Warren Buffet are needed to get a handle on the market, build a deposit before house prices outpace you again, and negotiate an affordable deal with a bank. There’s a danger that saving will be consigned to the “it’s all too hard” basket and leave it till later. But the sooner you start, the better.
And yes, that also applies to tertiary students. Whether you’re a student yourself, or you have kids and grandkids who are, there is never a better time to start learning how to manage money than now, no matter your financial situation.
The tertiary years are a crucial stage of embarking on academic journeys, but also for shaping financial futures. It’s a time of juggling studies, finances to live and pay fees, part time jobs, and, of course, the fun part of being a student. It’s also valuable to use this time to build an understanding of what it takes to establish a good financial foundation and start to build a good credit rating. It may sound like finance 101, but before delving into how to build good credit, it’s essential to grasp the fundamental concepts.
Credit is essentially borrowed money that individuals can use to buy goods and services. Debt can be super handy, but it does need to be paid back on time and with interest. It’s this interest that can make debt spiral out of hand quickly, so extreme caution is needed.
In New Zealand, creditworthiness is typically assessed through credit scores, which reflect an individual’s history of managing credit and debt obligations. These scores are crafted by computer algorithms, analysing your borrowing history and pertinent factors.
Having a good score can heavily influence your future borrowing potential so here’s a beginner’s guide to building credit wisely – one you might need yourself or the kind of tips to share with young adults in your life:
1. Obtain a credit report
Start by obtaining a copy of your credit report from agencies like Centrix, Equifax, or Illion. This report provides insights into your credit history, including existing credit accounts, repayment patterns, and any outstanding debts. It is free, unless you want it very fast.
2. Apply for a credit card
Having a credit card can be a pivotal step in building credit. However, you should exercise care and opt for cards with low credit limits and minimal annual fees. Responsible use of a credit card, such as making timely payments and maintaining low balances, can increase your creditworthiness over time.
3. Explore student loans responsibly
While student loans are often necessary to fund tertiary education, they also contribute to your credit profile. Be diligent in managing your student loan accounts, ensuring prompt repayment to avoid any adverse effects on your credit scores.
4. Establish utility accounts in your name
Setting up utility accounts, such as electricity and internet services, in your name can also contribute positively to your credit history. Timely payment of utility bills demonstrates financial responsibility and enhances creditworthiness.
5. Practice responsible borrowing
Whether it’s obtaining a personal loan or financing a major purchase, approach borrowing with caution. It is essential to borrow only what can be comfortably repaid and to diligently adhere to repayment schedules to avoid damaging your credit standing.
6. Cultivating financial literacy
Beyond building credit, increasing your financial literacy is paramount to help you make informed financial decisions and build healthy financial habits. Institutions and resources such as the Commission for Financial Capability (CFFC) offer valuable tools and educational material. There are also many financial books you can buy or borrow from the library. I tend to prefer ones by New Zealand authors as there are many nuances that specifically apply to our marketplace.
7. Leveraging technology
In an era dominated by digital innovation, you can harness the power of technology to manage your finances efficiently. Mobile banking applications and budgeting tools can empower you to track expenses, set savings goals, and monitor credit activity in real-time. There are many paid and free tools. Having better information at your fingertips increases your financial awareness, which leads to better financial knowledge and decision-making.
8. Seeking guidance and mentorship
Navigating the ins and outs of personal finance can be daunting, especially for students when you are embarking on your financial journey. Seeking guidance from financial advisers, mentors, or family members with sound financial acumen can provide invaluable insights and support in making informed financial decisions.
Building a good credit score and establishing a strong financial foundation are indispensable components of your journey towards financial independence.
However, please be super cautious about how you do this. It’s fairly easy to borrow money in today’s environment, especially small amounts like credit cards, hire purchases, afterpay, etc, but paying it back is so much harder. Those small amounts can grow if you don’t pay them back. If your debts do get out of control, it not only affects your credit score but can be a very unpleasant noose around your neck!
This is the first in a four-part series on building a secure financial future running on the listener.co.nz in March and April.
Lisa Dudson is an investor, entrepreneur, and author of 8 bestselling personal finance and property investment books. She has been a media commentator on financial issues for more than 20 years and is known for her pragmatic, meaningful and easy-to-understand financial advice. She is a director and shareholder of Saturn Advice and National Capital and provides financial and property advice through her consulting business www.acumen.co.nz
