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.