How to Avoid Damaging Your Credit Score
There has been an increase in the number of people struggling with debt, forcing many consumers to miss repayments and fall into arrears on mortgages and other loans.
All of this has an impact on household credit ratings. Missing payments on a credit card, forgetting to transfer money to pay for your lease-purchase car, or skipping a loan payment could mean you end up with bad credit.
Financial institutions report your repayment record from your creditors to the credit reference agency, the Irish Credit Bureau (ICB) each month. Information on individual loan accounts and judgments is also held by credit agencies Experian Ireland and BusinessPro.
The ICB is the state’s largest credit reference agency and is owned by financial institutions.
More than 80 lenders send information about borrowers and their loan repayments to the ICB, which holds an individual credit report for each borrower in its database.
Each credit report contains details of the loans the consumer has taken out, listing payments made or missed on each loan. It also describes loans that were settled for less than the individual owed and any legal action taken by the lender against that consumer.
When you apply for a mortgage, loan, auto finance (lease-purchase agreement), credit card, overdraft, or apply for a loan, you authorize your lender to send information about your repayments to a credit reference, such as the ICB.
This information is your credit history.
It usually displays:
- Your name, date of birth and address.
- Lender names and account numbers for all loans you currently have or that have been closed within the last five years.
- A history of all payments made or missed for each month on each loan, including any loans or credit cards you have not fully repaid.
- A score based on your credit history called your credit bureau score.
- A record of any legal action your lender has taken against you.
If you missed payments, didn’t pay off a loan or credit card, or paid off a loan for less than you owed, it will show up on your credit history for five years after the debt is closed. . This may lead to denial of other forms of credit.
However, Frank Conway of the Irish Mortgage Corporation and debt consultancy CredyCare, said those who missed their repayments by a few days shouldn’t end up with bad credit.
“The idea that not paying exactly on the due date leads to a bad credit history is false. Banks give a ‘grace period’. This means that even if you pay your monthly payment a few days after the due date, maturity, it will not affect your credit history.”
Indeed, although ICB members are expected to report any difficulties they encounter with an individual, in practice most (but not all) will wait a few weeks before reporting to allow the customer to rectify the problem. . He added that some consumers feel that when they are late with a payment, they will suddenly be classified as a “bad customer” and then be reluctant to contact their lender.
If you are falling behind on your repayments or are worried about making them, the best thing to do is to contact your lender and explain your situation.
You can avoid the burden of financial stress if you are able to reach a new repayment agreement with your lender. Often, agreeing to a new repayment schedule won’t affect your credit report, Conway added. But if you miss payments, the consequences for your credit report are serious.
“If you miss repayments, fail to repay a loan or credit card, or settle a loan for less than you owe, it will show up on your credit history for five years after the loan is closed” , warns the National Consumer Agency, which has taken over the function of financial information for consumers from the financial regulator.
“This can lead to another loan being refused, even if you have the income to pay it. Your credit report gives a complete picture of your history.”
A damaged credit history can mean it will be difficult for you to be accepted for a loan or mortgage in the future. This could mean that a young person who misses a lot of credit card payments might not be approved for a mortgage a few years later.