Long reach of credit ratings

Q&A:Please send your queries to Dominic Coyle, QA, The Irish Times, 24-28 Tara Street, Dublin 2 or by e-mail to dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering questions. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.

Q I am planning a move back to Dublin, once we’ve sold our home in London. I left Dublin in 2003 as a student, and a not-so-hot credit history in Ireland – I stalled payments for a small student loan, and the account, along with my bank account, was finally closed, without informing me, in 2007 – with the balance amounting to 10 per cent of the remainder of the loan.

Our plan is to move back within six months, work for a year and then start applying for mortgages. However, there are some areas of confusion for us:

1.What do we need to do to improve our credit history in Ireland, and to be able to open bank accounts (my partner is English)?

2.Does our credit history in the UK affect us? It’s pretty good, although my partner has some debts from about 14 years previously with collection agencies.

3.With approximately €140,000 from the sale of our flat, will we have a good chance of getting a mortgage of approximately €180,000-€200,000? (We will be hoping to be earning in the region of €25,000 per annum each.)

4.Are we considered first-time buyers (having bought in the UK)? If not, will we benefit from first-time buyer benefits such as mortgage interest relief?

Mr FR, e-mail

A A bad credit rating is never a good thing, and they do tend to have a long life. Even a repaired rating or details of a loan that has been written off are not expunged from the credit ratings agencies used by the banks for five years.

Credit ratings are important to lenders and they may well inquire into your previous residence and pursue the UK credit ratings of yourself and your partner.

The best way of improving your credit rating is by borrowing money and paying it off regularly. One way of doing this is by using your credit card for regular purchases and then paying it off, in full, monthly.

Of course, if you allow the credit card balance to build up, it is self-defeating.

Certainly, establishing a positive credit history in the time after your return home would be very important.

Credit ratings only really enter the equation when you are looking to borrow money – or seeking to broaden the credit limits of your bank account, say by taking out a credit card or overdraft.

In terms of opening an account in the Republic, it is not overly complicated and, in itself, not dependent on a credit rating. You will need to attend in person, generally by appointment, be aged over 18, provide two forms of identification – at least one of which must have a photograph – and proof of your residence and address in Ireland, such as a utility bill.

On mortgages, as you may have heard, the market in Ireland has tightened up considerably. It is impossible to state with any great confidence how a bank will determine the issue in your case.

What I can say is that your credit rating will certainly be taken into account and, while it appears your student loan may have been written off, that seems to have happened in 2007. On that basis, the record would be available at the Irish Credit Bureau – the group used for credit checking by most lenders – until 2012.

In addition, your partner’s financial troubles may be well behind her, but most mortgage applications will specifically seek details of previously missed payments and court judgments.

Further, while you would appear to expect to bring a hefty contribution to the mortgage table, you are also looking to borrow a figure that is a around a multiple of four times expected earnings. That could prove quite challenging in the current market.

However, one would hope that lending markets will have loosened a bit over the next 12-18 months and your employment record will be more solid by that time hopefully.

In terms of first-time buyer status, the Irish tax authorities’ determination is that a first-time buyer is someone who has never bought or built a property previously – either at home or abroad. On that basis, you would not meet the criteria.

In relation to first-time buyer status, it is an all or nothing situation. Failure to qualify as a first-time buyer for stamp duty purposes also disqualifies you from other first-time buyer provisions.

Q I have almost 10,000 shares in Waterford Wedgwood. Are these shares worthless now that the company has gone?

Mr JK, Donegal

A I’m sorry to say they are. Obviously, even 10,000 shares would not have been worth very much in the dying days of the company but, depending on when you invested, it could have marked a very significant investment outlay for you.

Unfortunately, once the company went into receivership the game was up for Waterford Wedgwood’s long-suffering shareholders.