Weighing up your credit risk

Missing a payment on credit cards or loans can prove costly. Niamh Hennessy reports on how your credit rating can be affected
Weighing up your credit risk

AFRAID you won’t be able to pay your loan next month, or worried your mortgage is going to fall into arrears?

You are not alone and thousands of people, faced with falling incomes in Ireland are struggling to make monthly repayments on their bills. But what are the consequences of missing a payment?

Information on how you deal with your loans is kept with the Irish Credit Bureau (ICB). They will know who you are, what you work at, how many times you went to the bank looking for a loan and how well you paid it back.

When you apply to your bank for credit in the form of a mortgage, personal loan or credit card, it will usually ask you to sign a document which allows it to pass on information to the ICB. This is so when you return looking for more credit they can check what kind of a customer you are —it’s like a buffer for the banks against people who can’t or don’t pay them back.

In the US credit reports are at an advanced stage, but in Ireland the concept is fairly new.

Director of moneycoach.ie, Frank Conway, who previously participated in a testing round for a credit reporting system, said that credit reporting in Ireland is getting more and more complex.

“Here in Ireland credit scoring is relatively new but is gaining in both acceptance and complexity, with aspects of the US scoring system being intertwined with the ICB.

“In terms of how the Irish credit institutions interpret and use credit scores, I understand that this is less well developed, with some banks relying on the scores provided on the ICB, whereas other banks use their own internal scores. I also believe that banks here may still be carrying out their own due diligence on the validity of credit scoring and comparing how that matches their own scores.”

Mr Conway believes, that assuming bank and ICB scores largely match, banks in Ireland will rely on credit scoring more and more.

“Credit scoring is the probably one of the ways forward when it comes to gaining credit approval in the future, and if the ICB were to be sold off to one of the large credit reporting agencies, such as Experian, Trans Union and Equifax, then credit scoring could become a way of life just like it has in other countries,” he said.

Credit reporting works in a way whereby the bank or financial institution will report to the ICB if you have missed a payment on a mortgage, credit card, personal loan or hire purchase agreement.

“You should be aware that when you initially apply for a loan of any kind in Ireland you are required to sign a consent form which essentially states that you are aware that a history of your repayments on this loan will be kept and will form part of your credit history,” said Mr Conway.

On a person’s credit report is a “Credit Bureau Score” (CBS) which summarises the report at a particular point in time.

“The details of your credit record with any financial institution or bank are between you and that institution. If your credit record was bad a long time ago but has now been rectified, you may be able to have this information removed from your record. However, this is only if the bank or financial institution agrees to this — they are not obliged to by law, nor required to do so as part of their own policy,” said Mr Conway.

Paying back credit that was borrowed during the boom is becoming increasingly difficult for people who are struggling with reduced wage packages. However the advice is to talk to the bank if you are having difficulty and don’t bury your head in the sand.

HOW CAN I PROTECT AND MAINTAIN MY PERSONAL CREDIT REPORT?

- Pay your bills on time

- Borrow only on the basis you can repay

- If you are experiencing difficulty contact your lender

- Dispute genuine errors. Even though errors are reported to be rare, they can happen.

HOW DO I GET A COPY OF MY CREDIT RATING?

It costs €6 to get a copy of the credit report from the Irish Credit Bureau (ICB). The ICB can be contacted on www.icb.ie or by calling 01-2600388. Requests for credit reports are usually processed within three to four working days and if you notice an error on the report you can ask your lender to write to the ICB with details of the changes. The ICB can’t change your report unless a lender requests it to do so in writing. If you are still not satisfied you can make a formal complaint and refer the matter to the Office of the Data Protection Commissioner (www.dataprotection.ie).

WHAT EXACTLY IS ON MY CREDIT REPORT?

- Name, date of birth, address.

- The names of lenders and account numbers of loans you currently hold or that were active within the last five years.

- Repayments made or missed for each month on each loan.

- The failure to clear off any loan.

- Loans that were settled for less than you owed.

- Legal actions your lender took against you.

Questions and Answers

Who knows about how I pay my bills?

The personal credit reporting system is managed by the Irish Credit Bureau, more commonly referred to as the ICB.

Lenders who are members of the ICB both report to the ICB and access data from the ICB. Put simply: Lender X wants to check the loan repayment history of Consumer Y. If Lender X is not a member of the ICB, if they do not report their data to the ICB, then they cannot access data from the ICB.

What is the Irish Credit Bureau (ICB)?

It is a credit-referencing agency in Ireland, owned and financed by its members which are mainly financial institutions. It holds information on mortgage, credit card, car and personal loans and leasing and hire purchase agreements. Lending institutions register information with the ICB, usually on a monthly basis. Each time you apply for credit from one of these lenders the lender accesses your credit file to find out about your performance under previous credit agreements with other lenders.

Which lenders are members of the ICB?

All of the main banks are members of the ICB but there are also some less well-known members.

For example, that sofa that you purchased on credit, 0% for the first six months at Harvey Norman? Guess what? The company that makes that 0% possible is a member of the ICB.

So, if you fail to pay off that nice sofa, it is likely to be reported to the ICB. Remember, taking out the sofa involved a credit application at some point and credit transactions are reported to the ICB. So remember, enjoy the sofa, but pay that bill.

What information is available about me?

A lot. Anything that helps lenders identify who you are and which ties you to any borrowings will be recorded by the ICB. This includes name, address, mobile phone number, occupation, number of times you applied for credit recently, creditors you applied for credit to recently, lenders that approved you for a loan and the monthly repayments on the loan. Information is also kept on how well you paid each loan and any defaults. Some lenders will also report any loan restructuring.

Credit Score — I see one on my ICB, what is it?

This is probably the future of credit reporting in Ireland and was developed by a company in the US called Fair Isaacs. It is a complex code that assesses an individual consumers propensity to default on a loan obligation. In the US, it is called a FICO score. Here in Ireland it is simply called a credit score. Experts say that the data feeding into the credit score is not as robust as it is in the US, but expect this to change. Credit scoring also looks at frequency of credit application and credit usage, such as are you always maxed out on your credit card.

Can others see how I pay my bills?

Only creditors who are members of the ICB can access the ICB for data on consumers.

Where is credit reporting likely to go?

The ICB could be sold off to one of the major international credit reporting agencies such as Experian, trans Union or Equifax. If so it is likely personal credit reporting will develop along international standards.

How long is my credit history recorded for?

All records remain on the ICB database for five years once the account has been completed.

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