Ever wonder why you were turned down for a loan? When reviewing a potential borrower's application, banks and building societies rely on several sources of information to assess credit risk.
The first bit of information in the pile is the customer's payment and account history with the lender. Details on the person's application form - age, profession, income level, home owner/renter - are also taken into consideration.
Information from a credit reference agency is one of the most important, and least understood, steps in this process.
Personal credit histories - including repayment details on mortgages, car loans and overdrafts - are recorded on a single database that may be accessed by all the big lenders in the State.
Unlike the US and Britain, Ireland uses a credit referencing system rather than a universal scoring system. This "electronic library", run by the Dublin-based Irish Credit Bureau, simply holds information on loans. It does not rank consumers' credit worthiness.
Credit scoring: After reviewing credit-related data on an individual, banks and building societies make their own determination based on risk models created from payment profiles of customers. Abroad, this process is normally carried out by commercial credit-scoring agencies rather than by individual lenders.
Lenders here assess applicants using the four "Cs" of credit: character, capacity, credit worthiness and collateral.
A brochure produced by the Irish Banks' Information Service Shopping for Credit* simply explains the domestic credit-scoring process.
"By attributing a value to each of these characteristics - including employment history, income, home ownership, age, credit track record, etc. - credit scoring can help calculate the level of risk and reduce the subjectivity in lending decisions," it says.
This method allows some lenders to run their businesses more effectively and it benefits the majority of their customers who wish to borrow only what they can afford to repay, says the booklet.
The 30 Irish Credit Bureau member-companies send updated information to the credit reference agency monthly. This includes the balance outstanding on any loan, any arrears that may have arisen and a history of the last 24 repayments.
Regardless of a loan's repayment record, the bureau holds details for five years from the end of the agreement. Under the law, data can only be kept on borrowers who agree to it but most loan applications include a credit reference consent provision.
Obtaining information: Consumers may receive a copy of their personal credit information from the Irish Credit Bureau for £5 (€6.35) to cover administration and postage costs. The bureau is obliged to provide the information within 40 days although it usually aims to deliver it to consumers in less than a week.
Some conscientious borrowers use the service to double-check that the information held on them is accurate. Others use it as a bargaining chip in attempting to get a better rate of interest from their bank or building society.
Correcting data: If you find that the information held by the bureau is wrong or incomplete, there are several ways to correct it. Contacting the lender about the mistake is the first step. If the issue cannot be agreed between the bank or building society and you, contact the Office of the Data Protection Commissioner. A customer finding themselves out of pocket due to an error should contact the Ombudsman for the Credit Institutions.
For more information, write to the Irish Credit Bureau, ICB House, Newstead, Clonskeagh, Dublin 14, tel: (01) 260 0388.
* Shopping for Credit, published by the Irish Banks' Information Service, may be obtained by ringing (01) 671 5299.
