17 Jul 2017
The credit rating system. Very few things inspire a shudder of fear quite like those four words.
Especially when you’re applying for a mortgage, and your credit rating seems like a mysterious and even ominous step in the process.
But contrary to what some people think, your bank isn’t CSI – and they’re not out to get you.
Often, they’ll do everything in their power to help get to the bottom of any one-off blunders in your credit history, and will lend an ear to your plight.
But there are many wrong assumptions about how your credit score is created – how it is assessed and what it is built on. So, with some insight from EBS Mortgage Advisor Matthew Kennelly, we’ve decided to clear the misinformation up once and for all. Thanks, Matt!
Your credit record includes details of any loans you hold with members of the ICB (Irish Credit Bureau). This record contains details of any loans for five years after any loans have been closed and of course, any active loans you may have too (So if you have just paid off a bad loan, it may not be time to celebrate just yet!).
When you apply for a mortgage, your bank will request a copy of this record from the ICB. Banks will also have their own internal procedure for recording credit alongside this process, which means lenders will also consider any overdrafts or missed loan repayments you had with them or their subsidiaries.
But what happens if you want to get a mortgage with unfavourable incidents in your credit history?
The important thing to remember is that all applicants are considered on their own merits, and contrary to popular belief, lenders are interested in knowing the genuine reasons behind a missed repayment.
So don’t hang up the gloves just yet – read below for five credit sins that may not affect your chances of getting a mortgage after all.
Okay, so you missed a loan repayment a few months back. Not an ideal situation – and yes, your credit rating will most likely take the hit. But that doesn’t mean you’re a scatty or unreliable person.
You might not have to wave goodbye to your chances of getting a mortgage; according to EBS mortgage advisor Matthew Kennelly, you could still be eligible.
“If there was a late payment or even if there was a missed payment on a loan? We’ll look into the reasons behind it. If the person has no previous history of bad credit, and if there was a genuine reason that was beyond the applicant’s control, then we will investigate the case.”
Two of the biggest questions we ask when considering the case are:
How quickly have they caught up with their repayments? And, has there been an attempt to fix the payment with their financial provider?”
Matthew remembers a couple who recently applied for a mortgage, but who had missed a repayment on their personal loan. Their payment was three days late, but the applicants had no history of unreliable payments – and because all other factors were up to standard, they passed for mortgage approval.
So you were as good a student as any – you scrimped and saved and lived on beans on toast to make your student loan repayments. But then your long over-due library fines rolled in, and it was your Mam’s birthday and Mother’s Day all in the same month.
It’s all a distant memory now though, and you’ve been as good as gold since. Don’t panic! Missing the repayment may not mean you won’t qualify for a mortgage this year. It’s just important to be aware how this data might come back to bite, and how you can fix it.
Your credit record with the ICB is wiped clean five years after a loan has been closed. For credit assessment, your lender will ask for bank statements which reflect a 6 month spending history. Now you know.
Some of us have had issues with dodgy service providers in our lives (maybe you got landed with a huge bill you didn’t deserve, or you had enough of poor service and decided to switch companies before the end of your contract).
But this isn’t necessarily bad news for your mortgage application.
“Your ICB credit rating is affected by financial companies who must register with the ICB.” Matthew explains.
A bounced direct debit for your phone bill may not affect your credit rating on your ICB report – but again, be wary of how this may affect credit on your bank account.
So this doesn’t mean you can miss repayments left, right and centre– as bounced direct debits, and consistently patchy behaviour will raise a red flag and may result in your details being passed on to debt collectors, which will be as clear as day on your bank statements when you apply for a mortgage.
Having no history of credit will not discredit you when you’re going for a loan, and will not give you a bad rating.
“We’ve had cases where applicants have taken out loans merely to prove that they can make the repayments. But they don’t need to do that. Being consistent with their savings and having a paper trail to highlight/show this should be enough to prove to a lender they’re capable of repaying their mortgage.”
Phew – so if you’re a savvy saver and you have never taken out a loan, all is not lost!
“If you run into a dry spell financially, don’t panic. The best thing to do is to talk to your bank straight away, so that you can both come to an arrangement for your future personal loan repayments.
Some lenders may agree to accept ‘interest only’ repayments on your personal loan for a certain period of time – and if this is pre-agreed before a payment is partially missed, it may not affect your credit record down the line.”
So the bottom line is this: try to pre-empt a financial issue before it arises, and then communicate with your lender before the trouble starts. They will help you as much as they can to make the repayments you can afford, over a certain threshold.
Many people wait until it’s too late to try plead their case to their financial institution – when they’re two or three missed payments under.
If you want to know more about applying for a mortgage, a 30 Minute Mortgage Meeting with an EBS mortgage advisor will set you straight.
If you have any queries about opening an EBS savings account, call 1850 654 321 or email firstname.lastname@example.org.
EBS d.a.c. is regulated by the Central Bank of Ireland.
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