Question:
I've a mortgage for nearly seven years. Due to unforeseen personal circumstances, I missed four months mortgage repayments approximately three years ago and went into arrears. The bank incorporated the monies in arrears into the total amount owed as I wasn't in a position to repay the full amount.
Since this happened, I’ve repaid the amount owed and am fully on top of my repayments. Just wondering how badly will this affect me if I want to apply for another mortgage? Is there anything you can advice me to do to get me into a better position to be successful in getting one?
Ms G.P., email
Answer:
While I'd love to say that missing a couple of months' mortgage payments would do no harm to your credit rating, I'd be lying – even if some lenders might occasionally give that impression to customers.
A loan agreement, such as a mortgage, is a contract, and if there is a problem delivering on that contract – ie making your repayments as they fall due - then the institution is going to take note. From their point of view, it is information that helps them decide on the wisdom of lending you money again in the future. That risk assessment is a fundamental part of banking, even if banks forgot that little nugget during the heyday of the Celtic Tiger.
Apart from your own lender, the information will almost certainly have been passed on to the Irish Credit Bureau, a central depositary for information on customers' performance in relation to paying their bills and any loans.
Your own bank, and indeed any other lender, would invariably consult your ICB file before agreeing to a loan, so these details will be available to any institution considering a future loan application. You give them permission to do so in the small print on any loan application you make.
So what exactly is on your ICB file?
It will have your name, date of birth and any addresses used by you in making loan applications, along with details of any loans you currently have (or have had within the last five years) and with which lender.
Importantly in your case, the file will include repayments made or missed each month for any loan outstanding or recently closed, any failure to clear a loan and any loan that was settled between you and the lender for less than the face value of the credit owing. Finally, if a lender has to take legal action against a customer, that too is recorded on the record.
Even after a loan matures and is paid off, the details are retained for the further five years – good or bad.
Apart from mortgages, details of car loans, leasing and hire purchase agreements, personal loans and credit card debt are held by the bureau.
So how do you know what is on your record? Well, as it happens, you are entitled to a copy of your ICB file. You can request it online by filling out a form at
https://secure.icb.ie/cr_personal.jsp?js=true or by downloading or requesting a form be sent to you either the website or by phone at (01) 2600388.
It will cost you €6 but is worth doing as mistakes do happen and, if they do, you are entitled to approach the lender to have them amended.
So that’s the bad news but it’s not all bleak
Your mortgage would have been drawn down after the property bubble burst. That means the vetting would have been much more stringent than a couple of years earlier, so you clearly had a solid credit rating to start with.
You have done the right thing. Having found yourself in arrears, you have struck an agreement with the bank – in this case to consolidate the arrears with the remaining sum due on the loan. Critically, you have stuck to that agreement in the intervening three years.
You can rebuild a credit rating in the same way as you can damage one – though your track record on repayments. While damage has been done, lenders will be reassured that it was not allowed to drift and that any agreed resolution was complied with fully.
To further improve your record, you need to keep going as you are. Do not miss any repayments on the reconstituted mortgage and don’t get into trouble on credit cards or any other bills. And on that note, don’t automatically tear up credit cards. No card transactions and repayments mean no impact on your rating. Lenders want to see you manage debt not dodge it.
