Your credit rating can come back to haunt you, no matter how innocuous the offence may have appeared
When you apply for any form of finance the first thing the lender will do is a credit check on you by submitting your details to the Irish Credit Bureau (ICB)
They want to see if the person they are considering lending to has a good repayment history, if any judgements has ever been registered against them, if they have any existing loans etc. and the ICB report will tell them all of that.
Your credit history is as important, as the amount you are borrowing, your income, who you work for etc. and some experts would even argue it is more important than every other factor put together.
It allows a lender to view how you conduct the repayment of loans past and present, and they can view if you were ever in arrears and, if so, by how many months. It gives them an important picture of how you manage your money and what your repayment profile is like.
There are several occasions when people apply for a loan and while repayment ability is without question, they have been refused finance because of a poor credit bureau report. It can be very frustrating as you may not remember any loans you had in the past and if you do, you thought your repayment record on them was actually ok.
Of course what you think may be fine and what a lender thinks could be two different things. A lender will frown upon you even if you have missed just one payment. And if there is a regular pattern of missed monthly repayments, then this is a red flag to them and your chances of getting a loan reduces significantly. In fairness, could you blame them? Would you lend your own money to someone who has history of not paying it back on time?
People make the mistake of being lazy about how they repay loans. Some think it is OK to miss one or two repayments and catch up at some stage. They don’t realise a bank views it completely differently. Do they really want the hassle of chasing you every month with letters and phone calls asking for you to bring your account up to date? Not really.
The impact of having a bad credit rating can mean one of two things:
Worst case scenario - You may never get approval for a loan from anyone again
Best case scenario – If you do, you can expect to be charged a much higher rate of interest because you are seen as a high risk borrower
I came across the latter recently when a gentleman was telling me how he was looking for a term loan of just €500, and really needed the money. He applied to his bank and was declined because last year he missed two repayments on a car loan he had, even though he had since brought the account up to date.
Had he not been in arrears, he would have been approved, and the interest rate he would have been charged would have been 7.5% APR.
His only option now was to go with a lender who specifically target and lend to people with poor credit ratings. They approved him alright, but the rate of interest he signed up to was 187.2% APR.
If you are in any doubt about loans you currently have or ones previously held by you and you are not sure if they may come against you or not when applying for any form of credit in the future, then carry out a credit check on yourself and view exactly what every lender will see.
I would recommend this is something you should be doing every 18 months, applying for credit or not just to make sure that the records held by the Irish Credit Bureau, on you are correct. It will cost you just €6 and you can submit your request online at www.icb.ie.
And if the details recorded are not correct you can go about making the changes before you submit an application or if there is a record that you had missed repayments at some stage, you can explain why. Because when a bank views a report, it doesn’t tell them why someone missed a repayment only that they did. The reason could be very innocent and simple, for example a salary was late being lodged to an account, you had changed bank accounts and the funds were returned unpaid because they were looking for them from the wrong account, or you were out of work ill and not working for some months which was the reason you missed the repayment.
There could be a whole host of reasons but at least you can see what a lender will see and you can address the situation before you make an application rather than being turned down because of a poor credit history, which you only find out when the application is refused.
Iif your credit history is good, how impressed do you think a lender would be if you presented them with a copy of your ICB report along with all of the other documents they request from you? They won’t have asked you for it, but it shows you did your research, are prepared, and this will seriously impress them.
A word of caution to those who are considering acting as guarantor for a loan. You need to be very much aware that the failure of the person they are helping will be a reflection on them also, and the accounts profile will duly be recorded under their name as well.
I came across an individual a couple of years ago where they applied for a loan and was refused and he couldn’t figure out why, as he didn’t have a loan in place. He was refused because of a poor repayment history on a loan currently outstanding. How could this be? And then a possible explanation dawned on him because he acted as guarantor for his brother about three years ago.
It was this loan which was three months in arrears and this was being recorded on the guarantor as well.
So if you are acting as guarantor make sure you get copied on every correspondence from the bank so you know immediately if a payment was missed and that it can be corrected immediately if possible.
I cannot stress the importance of having a good repayment record so make sure you meet the repayments on time.
Liam Croke is MD of Harmonics Financial Ltd,
based in Plassey. He can be contacted at firstname.lastname@example.org or www.harmonics.ie