Apply for loan, get loan, repay loan.
This seems like a relatively straightforward process for most people with any experience of borrowing from a lending institution and one that the majority of the population will likely have carried out numerous times. But what about those months when your repayment was late for one reason or another? Or that time when funds were particularly tight and you took out more than one loan in the space of a year.
All of these instances can affect your credit report in varying degrees, and as a vitally important record – especially when it comes to applying for your mortgage – it helps to understand the ins and outs of how it works and why it matters so much.
What is a credit report?
A credit report is a record that is kept on every individual who has borrowed from a lender at any point in their life. It contains personal facts such as the individual’s name, date of birth, PPSN and other such data, as well as information on previous or existing loans, like the amount, name of the lender and any overdue payments. Loans under €500 are not included on your record.
Compiled by the Central Credit Register, it is updated on a monthly basis by your lender, who is required by law to submit information for inclusion. This report is a vital piece of information for a lender assessing your eligibility for future loans.
At any given time, a lender will be able to see the loans you have taken out and from which lending institutions for the last five years. They can also view the past two years of activity relating to your loans – the final two years for loans that have been paid off and the most recent two years for existing loans. After your last loan has been paid in full, your information will remain on the Central Credit Register for a five-year period.
Why is a credit report so important when applying for a mortgage?
A credit report provides a lender with the most important information they need, particularly in the case of a mortgage application. Not only does it give them a feel for the type of borrower you are (do you have numerous late payments on record or are you known for paying religiously every month?), but they can also see how you may have improved your habits over time. This is hugely important, as every effort made in the lead up to a mortgage application to clear outstanding debt will be held in your favour.
Another way to improve your credit report before you embark on the mortgage process is to avoid excessive loan applications in the period leading up to your application.
Keeping tabs on your credit report.
You can – and absolutely should – keep track of your credit report, especially if you’re considering applying for a large loan, such as a mortgage. While you may have been diligent with repayments for previous loans, there might be certain instances that have slipped your mind but have still made their mark on your credit history.
Such cases include a late or missed credit card payment or overdue arrears on a very old loan. This is known as “bad credit” and could pose a very big problem for you when approaching a lender.
Another reason that you should check your credit report is to ensure it doesn’t contain any false information, such as a loan that might be listed as outstanding when in fact you paid the balance years ago. You can request access to your report free of charge through the Central Bank of Ireland’s website.
For help understanding your credit report or to talk to a broker about a mortgage, contact us today.