When you apply for a loan or mortgage, lenders will make a judgment based on your financial past — so watch out for those skeletons, warns Eithne Dunne
If you missed a payment or two on a car loan a couple of years ago but rectified the situation as soon as possible, you might think — understandably — that it would have no further bearing on your life. Look for a mortgage or loan, however, and you may discover that the oversight has more far-reaching consequences than you realised.
Whenever you apply for a loan or mortgage, your potential lender will take numerous factors into account. It will study your bank account activity for the past six months, look at unusual transactions, signs of financial pressure on the account by the end of each month and search for evidence of regular gambling.
It will also get hold of your credit record, which will give it an overview of what kind of borrower you have been for up to five years before your loan application. It will go through this information carefully.
According to Joey Sheahan, head of credit at MyMortgages.ie, lenders are “extremely picky” at the moment, but there is a small amount of wiggle room. “In most cases, if they deem that the borrower didn’t engage or make an effort with the bank they had the issue with, they won’t grant the loan,” he says.
“However, if there were genuine circumstances, for example if someone was made redundant — or was off work due to illness and every effort was made — and the person’s circumstances have improved, lenders can overlook it, but that needs to be demonstrated properly to the banks.”
Steven Barrett, managing director of Bluewater Financial Planning, says banks use their discretion to some extent. “It used to be that your record had to be 100% perfect, and lenders are still strict. But say you missed one payment and you can give a good explanation as to why — you moved house, emigrated or changed bank accounts — they may overlook it. However, if you have several missed payments, the main banks won’t lend to you.”
Where is my credit record held? There are two bodies holding information on your credit history. The Irish Credit Bureau (ICB) is the main credit rating agency and holds information on borrowers and their loans for up to five years after a loan is closed. This information includes your name, address, date of birth, current loans — or loans within the past five years — repayment history and details of any legal action a lender has taken against you.
As soon as you submit a loan application to a financial institution, you are giving it permission to access your credit record via the ICB. It will usually receive a credit report and a credit score. This is a number that summarises your credit report and the higher it is, the better. Your score can change over time, depending on your borrowing activities.
The relatively new Central Credit Register (CCR), which is run by the Central Bank, also holds information on consumers’ credit history. Since June 30, last year, banks, credit unions and any lender providing consumer loans of €500 or more have had to submit personal and credit information on those loans to the register each month. Credit card loans, mortgages, overdrafts and personal loans are included. From next month, this will be extended to money-lender loans, local authority loans and business loans. Other loans, such as personal contract plans and hire purchase will be added in the future, subject to a legislative amendment. Credit information includes the loan type, the amount outstanding and number of payments in arrears, if any.
How do I get a look at my record? To look at your ICB credit report and score, download or request an application form (icb.ie). The charge is €6 per application. At the moment, consumers cannot get a report from the CCR, but, according to a spokesman, this facility is due to be introduced within the next month. Reports from the CCR will be free and details as to how to get one will be published on its website (centralcreditregister.ie). Remember that, so far, the CCR holds information dating back to the end of last June only.
Unlike the ICB, the CCR does not calculate a consumer’s credit score or grade. “As well as requesting a copy of your credit report from the CCR, you will be able to place an ‘explanatory statement’ of up to 200 words about any of your information, or ask for information to be amended if you believe it is inaccurate, incomplete or not up to date,” said the spokesman.
If you want a mortgage or loan, Barrett recommends that you get a copy of your credit report. “That way if there is an issue you can see what it is,” he said. He also says errors do sometimes occur, and seeing your report will give you a chance to rectify them.
Sheahan says that, if there is inaccurate information on your report, contact the lender and advise them of it so they can rectify it. “Or, if you’re unsure, at least contact the lender and ask why the information has been recorded in that way,” he says.
Can I improve my credit score? While you cannot change your credit history and score — apart from making sure the information held is accurate — you can at least ensure that it will improve over time.
“The best way to improve your credit score is to be financially organised,” says Barrett. “If you consistently miss payments, banks will not consider you financially organised. So make sure there is money in your accounts when direct debits are due to go out, arrange to have them come out after pay day and, ideally, have a separate account for bills so that that money won’t be touched otherwise.”
Sheahan says he sees people who had a relatively small loan or credit card balance in the past, then changed address or went travelling and missed a payment or two. “They may not even have been aware of it, and may have rectified it as soon as they heard from the bank, but it is still a black mark on their credit history,” he says. “So our advice is to eradicate that kind of thing. If you change address, notify lenders, and set up a direct debit to at least pay the minimum amount.”
Even if you have had a loan approved, don’t take any chances. “Banks do an ICB check at the beginning of the process and again just before issuing the cheque,” says Barrett. “Do not take out any more loans before you get that cheque. You do not want your mortgage to fall through at the last moment because of a new TV.”
Sheahan also advises that, whenever you pay off a loan or clear a credit card, make sure you get confirmation from your lender that you have done so. Note that the ICB keeps records for only five years, so beyond that, you technically have a clean bill of health. However, if you had an issue with a particular bank, it will have that on its own records and may not lend to you again. Some lenders may lend to you if you have had a clear record for even the past two years, Sheahan says.
If you can’t raise the finance you need through the main banks, and can’t wait for your credit rating to come up to scratch, you may have a better chance of success with alternative mortgage lenders, such as Pepper Group (peppergroup.ie).
Do not take out any more loans before you get that cheque. You do not want your mortgage to fall through because of a new TV
Source: Sunday Times 25 Feb 2018
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