Could your credit score be poor - and can you repair it?
Many people are being turned down for mortgages and other loans because of a bad credit record built up during the recession. Once flawless credit histories are being blighted by a few months' bad luck - even if that misfortune is now a distant memory.
"There were a lot of periods over 2012 and 2013 when people missed a few credit card or mortgage repayments because they were out of their job for a few months," said Stephen Curtis, a debt advisor with the Irish Mortgage Holders Organisation (IMHO). "Although they've since gotten back on their feet, they are now finding that when they apply for any type of credit, they're being turned down. Because of everything that has happened over the last few years, the banks have become ultra cautious - so they're only lending to people with 'perfect' credit histories."
So could you unknowingly have built up a poor credit record over the last few years? It largely comes down to how well - or badly - you repaid your loans. Any difficulties you ran into repaying loans over the last five or six years could damage your credit rating as your credit record, which is held by the Irish Credit Bureau (ICB), contains details of all loans you have taken out within the last five years.
"You'll have a poor credit history if you've had four or more months of missed repayments on a loan," said Mr Curtis. "If you have a credit union loan that has not been repaid - or that has been repaid patchily, that too will work against you."
Even if you have managed to meet most of the monthly repayment due on a loan, but not the full amount due, this could damage your credit rating.
"Missing part of a monthly repayment affects your credit rating," said Mr Curtis. "So if you're supposed to repay €100 a month off your loan and you're only paying off €90 a month, that will bring down your credit score."
Having a large number of loans will also taint your credit rating - as will overdrafts run up on your current account.
Colleges were flooded with mature students during the recession, because many of those out of work at the time took the opportunity to up-skill. Any student loans or credit cards taken out during that time could come back to haunt you.
"Taking out a few credit cards and not managing them well is something people often do as students," said James Jones, head of consumer affairs with information services group Experian. "Students often see a credit limit as a target and then end up in debt. Banks will see how you have behaved in that respect and may be reluctant to lend to you going forward."
Your credit record includes details of any loans you hold with members of the ICB. The ICB holds information about borrowers and their loans for five years after a loan is closed. Lenders will check your credit record before offering you a loan - and are likely to turn you down if that history is bad.
That doesn't mean that you have to wait five or six years after falling behind on a loan or credit card bill before you can apply for any kind of credit again.
You can take steps to repair a poor credit rating.
"As debts get older, their impact on your credit rating starts to diminish, particularly if your recent financial behaviour is more positive," said Mr Jones. "Lenders are usually more interested in your most recent history - so if you were taken to court over debt a few years ago and have since caught up on that debt, you may be okay."
The quickest way to repair a bad credit rating is to clear any repayments you have built up on a loan. Come to an arrangement with your lender to clear those arrears over time if you can't afford to do so immediately.
"Such an arrangement will look better than a situation where missed repayments are clocking up," said Mr Curtis.
Another useful tactic is to take out a small loan or credit card (if you can secure one) and to manage that loan or credit card well. Anything which demonstrates that you are now able to keep up the repayments on a loan or credit card should tip the scales in your favour when it comes to securing future credit, according to Mr Jones.
You can get a copy of your credit record from the ICB (www.icb.ie) for €6. It is worth checking this record to ensure it is accurate.
Your credit record will usually include your credit score - which sums up your credit rating at a particular point and time. The lower your score, the higher your credit risk - and the less likely you are to get a loan. The higher your score, the lower your credit risk - and the better your chances of getting a loan. The worse credit score you can have is 300; the best is 850. There may not be a credit score in your record if a lender has not recently checked up on you.
The Central Bank is setting up a new credit register, which is expected to be in place by mid-2016. Lenders will be forced to check this register when borrowers seek loans of more than €2,000. They will also have to provide details of any credit applications or agreements where the amount of credit applied for is more than €500. "The new mandatory credit reporting obligations will apply to a broad group of lenders, such as banks, building societies, credit unions, local authorities, Nama, asset finance houses and money lenders," said a spokeswoman for the Central Bank. "Importantly, the obligations will also extend to entities which have acquired loan books from Irish financial institutions."
However, in-store credit and mail-order credit may not be recorded on the new register. "Credit provided for facilitating the purchase of goods or services from the person by whom the credit is provided" is excluded from the register, according to the spokeswoman. "So in-store credit and mail order credit may fall outside the scope [of the register]."
Now there's a loophole that could trip up the new register and see borrowers biting off more than they can chew.
Sunday Indo Business