Getting the banks to agree to give you some credit

Even if you are held in disdain by money-lending institutions, there is always an alternative solution available, writes Laura Slattery.

Rejection is never easy to take. You blame others for their intransigence, their prejudice, their inflexibility to overlook one tiny flaw. You indulge in a 24-hour soul-searching session, asking anyone who will listen what you have done to deserve such cruel spurning. Then you ring another financial institution and start all over again.

If more forms with your name at the top have been stamped "application denied" in big red capitals than you can remember, you will understandably want to know why.

Financial services firms are sometimes reticent about why they are rejecting a customer. For "commercial reasons" they say, they cannot disclose what it is they don't like about you.

If you have just totalled your car and injured several pedestrians while doing 100 kilometres per hour down a one-way street in the wrong direction, it won't take a detailed letter to explain why motor insurance companies don't want to know.

And if a budgeting crisis led to defaulted loan repayments and, eventually, to the small matter of legal proceedings, it won't be too much of a surprise when fresh, credit-seeking endeavours end with the sound of lenders laughing you off the phone.

If you are persona non grata in the eyes of banks, building societies, credit card providers and insurance companies, what can you do about it?

It may seem like lenders are throwing money at consumers, leading to Central Bank warnings of over-indebtedness in the Republic, but credit is not easy to come by for everyone.

If you are repeatedly turned down for credit by financial institutions, it will generally be for one of two reasons: you don't have enough income - or sufficiently regular, guaranteed income - to meet the repayments; or the lender has taken one look at your credit history and found it disturbing reading.

Students may be able to get their parents to act as guarantor on loan, but realistically there is little most people can do about the insufficient income problem except go on the interview circuit in search of better (paid) things.

Consumers with healthy incomes who are rejected for loans or credit cards but can't recall any debt hiccups from their past can check their credit record by applying to the Irish Credit Bureau (ICB) and paying a €6 fee.

Mistakes can, and have been known to, happen. However, consumers have the right to demand that inaccurate information in their record be corrected or updated.

For example, the most recent code letter shown to describe the repayments on a loan might be "P", which means litigation is pending. But the borrower might since have settled the loan, so a "C", which stands for a cleared account, should be added to the payment profile.

Consumers can also add up to 200 words to their record to explain why there were delays repaying a previous loan, as long as the explanations are not "frivolous, vexatious or denigratory", according to Séamus Ó Tighearnaigh, the ICB's chief executive.

Ó Tighearnaigh believes, however, that this facility is overused and borrowers would be better off disclosing any mitigating factors upfront.

"If you defaulted on a loan because you had a stroke and were in hospital for five months, you will be better off telling the lender about it when you first approach them," he says.

"You can assure them that you have recovered and have the capacity to borrow again, rather than waiting until you have been turned down and writing a whole Angela's Ashes account about how everything in your life has gone wrong."

Credit-starved consumers have the comfort of knowing that after five years, details of a loan that went wrong will be wiped from their credit record. That doesn't mean it's not possible to get credit in the meantime. "It's not like there's a five-year jail sentence," says Ó Tighearnaigh.

Some lenders won't touch borrowers unless they have blemish-free history of disciplined repayments, while others actively chase credit-impaired people and charge them higher-than-average interest rates, he notes. "There is every shade of the rainbow in between."

CitiFinancial tailors its personal loans toward "higher-risk" borrowers, charging them interest rates of up to 35 per cent APR on smaller loans.

These rates are not nearly as high as the 200 per cent APR rates charged by some licensed moneylenders, but the lender is probably the second-last resort for credit-impaired people desperate for funds in a hurry.

Some loan and credit card providers use risk-based pricing. For example, on its personal loans, One Direct offers a scale of interest rates ranging from 7.75 per cent to 19.9 per cent APR, the rate increasing in line with the risk that the borrower will default.

Meanwhile, most credit unions are still not members of the ICB and thus currently have no access to borrowers' payment histories. A good record of saving at the credit union will be a determining factor in whether it will advance a loan.

However, six credit unions have joined the ICB and at least another 14 are preparing to join shortly, as the credit union movement seeks to avoid its exposure to bad debts.

Past carelessness with loan repayments can come back to haunt property hunters who, despite their high earnings, may be turned down for a mortgage by all the mainstream lenders.

There is now a way out of this problem, following GE Money's announcement earlier this month that it is to extend its mortgage for the credit-impaired market to first-time buyers.

"Many customers that are deemed to be outside the existing fixed underwriting criteria for high-street lenders are normal people who may have been through difficult financial times," says Eoin Lynam, GE Money's marketing director.

"Our experience indicates that where people are given the chance to redress their financial issues, they have done so in a responsible manner and will re-establish their credit history over time."

Borrowing through the GE Money mortgage is expensive, however.

Interest rates start at 4.95 per cent, compared to typical tracker mortgage interest rates of 3.1 per cent.

The GE rates can be even higher, depending on how recent and how severe the credit problem was.

The average rate charged is about 6 per cent, according to a spokesman.

After about three years, the borrower should try to remortgage to a mainstream lender, who may then take a more favourable view of their credit history.

But the higher interest rates charged mean that homebuyers should shop around for a mortgage from all the mainstream lenders first.

The other solution is to wait five years for their debt problems to be deleted from the ICB record and be content to hand over rent in the meantime.