Making sure your credit rating stays in the black
LAST WEEK the chief executive of the Consumer Association of Ireland Dermott Jewell issued a dire warning that, in spite of all its promises, some Ulster Bank account holders would see their credit rating badly damaged as a result of the current “technical glitch” (or as we prefer to call it, technical fiasco) that has left thousands of the bank’s customers without access to funds for as long as three weeks now.
Jewell said a damaged credit rating could “destroy someone’s life” and he warned that some people would “fall between the cracks”.
And if people do fall between the cracks, they may not even realise it for many years, by which time resolving the problems might be problematic.
While we can only hope the consumer advocate is wrong about the long-term consequences of the Ulster Bank meltdown – and the Central Bank went to great pains last week to reassure people that credit ratings would not be affected as a result of missed payments – Jewell is on the money when he talks about this potentially disastrous consequences a damaged credit rating can have, particularly in the current climate which has our banks looking for any reason to reject a loan application.
When you apply for a loan you can expect your lenders to ask for your income, employment status, living costs and existing borrowings in order to assess whether or not you’re a desirable candidate, but the checks do not stop there and all lenders also delve deeper into your financial past through background credit checks.
You probably have never even noticed it in the fine print of your loan application but when you sign the form you automatically give your lender permission to access information about your credit history from credit reference agencies.
If you have ever blotted your copybook, for example by forgetting to pay off your credit card on time, missing a payment on a personal loan or falling behind on your mortgage, it will seriously damage your chances of getting a loan.
Lenders rely on the Irish Credit Bureau (ICB) as their primary source of working out whether a loan applicant is a good risk. More than 80 lenders send information about borrowers and their loan repayments to the ICB, which holds an individual credit report for each borrower on its database.
These reports have details of all loans and leasing and hire-purchase agreements a person has, the repayments made or missed, and any legal action taken by the lender against that person. Credit card details are there too, but overdraft agreements are not monitored by the ICB unless the agreements are the subject of legal proceedings.
Would-be lenders don’t only look through your credit, they also get a credit bureau score from the ICB which summarises your credit report at a particular point in time, and the higher the score the more likely it is you will stick to agreed repayments.
If there are any blemishes on your record, they will take five years to disappear, but you can boost your credit bureau score by making timely repayments on all of your current loans and avoiding making excessive applications for credit.
If you have ever been turned down for a loan or you just want to find out what the banks know, you can check your credit report with the ICB and it is a bargain at just €6. Applications can be made on icb.ie, from where you can download an application form, or you can call the ICB on 01-2600388 to request one by post, and submit it with a postal order or bank draft.
Taking the online route is incredibly fast and when Pricewatch did it last week, the process was completed in less than five minutes, while the report itself arrived within three working days.
When you get the report, make sure you keep an eye out for mistakes – either yours or a lender’s. You may have completed a direct debit form wrongly and missed a loan repayment due date or your lender may have granted you a moratorium on a loan for a period, but forgot to indicate this on the report sent to the ICB.
Lenders generally act swiftly to correct any mistakes and amend a credit report, but if they fail to resolve a situation, you should make a formal complaint and refer to matter to the Office of the Data Protection Commissioner (dataprotection. ie).
If you do find a black mark against your name. it is not the end of the world.
If you have a wallet full of credit cards, cancel them – or at least all but one of them. Banks frequently ask for a full year’s worth of credit card statements and tend to frown on high levels of such debt.
Banks increasingly apply what is know as “soft underwriting” tactics to select only the most responsible of borrowers. So if you withdraw cash at city centre ATMs late at night or have a record of spending a tenner on your Laser card in your local off-licence, it will help the bank paint a picture of you that might not be altogether flattering.
If you want to make it harder for them to profile you and your spending habits, make the effort to withdraw your weekly budget in cash. If you are late by more than 30 days with a loan repayment, your lender will automatically forward the information to the Irish Credit Bureau and your credit score will be negatively impacted for five years.
If you must bet, don’t use the web. Cancel your online gambling account and go all old school by visiting your local bookies with a fistful of euro instead.
Banks have told us off the record that they do not look on gambling habits kindly. It is, for them, an unquantifiable risk and a month of heavy losses could seriously impact on your ability to repay a loan.
Banks used to ask for copies of utility bills as proof of residence, but now they are checking them to make sure you are keeping up with repayments and, if one of your utility accounts is in arrears, it will be a straight “No” to your loan application.