Conducting a Credit Check used to be something only banks and lending institutions did. But with recent "economic events" it's now more common (and more necessary) for businesses and sole traders to conduct credit checks on their customers.

If your business supplies goods or services prior to being paid for them then you too should seriously consider adopting routine credit checks on your customers in order to protect your cashflow (and commercial survival).

Conducting a consumer credit check in New Zealand is relatively simple ad inexpensive... making it inexcusable when someone with prior default history fails to pay you.

The first step in conducting a credit check involves requesting a Credit Report.

A Credit Report is simply a document that records information of relevance for credit assessment purposes.

A Credit Report will commonly include all the following:

* Who you have applied to for credit (banks, utilities such as telephones, finance companies);

* The amount of credit you applied for;

* The type/purpose of credit sought (overdraft, interest free, home loan, credit card);

* Records of payment defaults (overdue accounts) (if any);

* Court judgments (if any);

* Bankruptcy listings (if any);

* Collection Agency defaults (if any);

* Collections data (if any);

* Records of any ID you have reported lost or stolen.

However, a Credit Report will NOT contain any of the following information:

* Political, social, religious or ethical opinions, beliefs or affiliations

* Criminal record, other than fraud related transactions

* Medical history

* Colour, race ethnic or national origins

* Sexual orientation or sexual life.

All adverse information (i.e. collection data, default data and judgment records), remains on your credit file for five years. Previous enquiry information and bankruptcy information remains on your credit file for seven years.

However, unlike Credit Scores used in The United States, New Zealand Credit Reports only record adverse or "negative" information. Put another way, there is no way for your "positive" credit-behaviours to off-set your "negative" behaviours. In this way they provide a very one-sided perspective of an individual's credit habits.

Who Compiles The Credit Report?

In New Zealand there are two Credit Bureau's that collect information from various sources and provide consumer credit information on individual consumers for the purpose of conducting credit checks.

These two Credit Bureaus are Veda Advantage (formerly Baycorp) and Dun and Bradstreet.

As these are two distinct entities and their sourcing and reporting of credit information differ their respective credit reports for any given individual may vary from one another.

Obtaining A Credit Report

There are numerous agencies in New Zealand which can supply you with Credit Reports from both credit bureaus.

For a very reasonable annual subscription fee (generally between $300-$400 p.a.) you can obtain a Credit Report for just under $6 per individual.

To request a Credit report you must have the individuals written authority to do so.

When Should You Request A Credit Report?

It does not make economic nor good business sense to put each and every one of your customers through a credit check.

Naturally, if a customer has an existing relationship with your business with no bad credit then it's unlikely the likelihood of averting a potential future default on payment will warrant the considerably greater risk of insulting this person.

Similarly, if the size of the transaction is small then paying $6 for every customer will take a significant bite out of your profits.

However, if you're about to offer your goods or services to a person you've never done business with before and that transaction is greater than $400 in value ($400 is the average default amount for New Zealanders) then it would prudent to conduct a credit check.