With 118,000 residential mortgages still in arrears at the end of September 2014 (the last Central Bank statistics) – and many tens of thousands of others provided with some sort of forbearance measure – it’s clear that there are a great many people who have impaired credit records.

These numbers don’t even take into account the tens of thousands who have unsecured debt and arrears – credit card balances that have been missed or unpaid; personal and car loans that have defaulted; and / or hire purchase contracts that have gone bad. 

An impaired credit record happens in degree. For example, when…

• you miss a mortgage or other loan payment
• you miss a utility payments
• you don’t pay the entire amount due on your loan or even the minimum required payment on a credit card balance
• you default entirely on a loan
• you are officially insolvent or bankrupt

An impaired credit record – again we’re talking degrees of impairment – can also occur because loan applications have been refused or even because you happen to have multiple loans outstanding or “too many” credit cards.

Irish Credit Bureau

Your credit record is established (and accessed by banks, building societies, credit unions (now), local authorities, utility companies, etc) by the Irish Credit Bureau. 

Your score is point-based and depends on all the above factors; high scores are good; low scores are bad. Your scores are determined by the information that banks and other credit unions provide about you; the record of your score per loan is kept for five years after the loan is closed – that is after it is repaid, defaulted or written-off.

You can get a copy of your credit score and the ‘record’ against you supplied by your bank or other credit institutions for €6 by contacting the ICB.ie.

If there are mistakes – or you want to challenge an entry – it is the bank/institution that must change/withdraw the information, not the ICB. “It is a difficult process” according to a credit union manager.

Rebuilding your credit record

How long, or how difficult it is to rebuild your impaired credit record, depends partly on the seriousness of the impairment and the quality of your restoration plan:

• Mortgage arrears or default ranks far greater an impairment than missing or not fully paying a single (or even occasional) credit card balance.
• Entering an official insolvency process with the ISI or going bankrupt is the nuclear option and will take much longer to reverse than missing a few mortgage payment.
• Different lenders can take different views/positions. Very generally (and everyone’s experience is different), banks can be tougher than credit unions when issuing new credit. Moneylenders have been known to be more “lenient” than some credit unions with clients who’ve defaulted in the past. (They can afford to be – some charge up to 287% interest)
• Rebuilding an impaired record starts with clearing remaining debt and sticking to credit repayment deals
• Sticking to a spending budget.
• Opening a savings account – with a credit union and manager who you can get to know – specifically to show them or other lenders that you can now live within your means and save surplus income.
• Eventually you apply for a small loan (best to check the likelihood of it being approved – you don’t want the rejection on your ICB record) and repaying it on schedule.
• This could take years if you have a particularly poor score, are insolvent or are bankrupt. There is no quick fix.

Banks have their own 'credit bureau' and records

Financial and debt management advisers generally say it isn’t just the ICB record that influences bank lending decisions, but their own internal credit records and scores.

There was an example given of a couple who applied for their first home – both with good jobs, little or no outstanding debt, no multiple credit cards or excessive credit applications on their ICB records, but he had messed up his credit card repayments for a short time 13 years earlier with his bank. They were refused the mortgage even though they appeared able to repay it.

Student loan defaults “when I was young and foolish…I was young and foolish” are also cited as a regular source of loan rejections in your genuine adulthood.

When this happens – (and if the bank even gives you a reason for the refusal) - you need to either ask for a meeting and argue your case in person… or go to another lender.

Finally, by sometime in 2016 the Central Bank claims it will have introduced a mandatory credit reporting process as part of a new credit register they are setting up.

Every institution (including moneylenders and investment funds that acquire Irish debt books) will be required to report loan applications worth more than €500 and lenders required to check the register when someone applies for a loan worth more than €2,000.

Store card issuers will not have to participate (a potential loophole?).

At the moment, not all bad credit events have to be reported to the ICB.

* MABS have a guide to credit ratings on their website that can be downloaded. MABS and your local credit union should be your first ports of call.