How healthy is your credit file?

I have noticed that several assumptions regarding personal credit checking in Ireland are circulating in the blogosphere. Perhaps it is exposure to US advertising that has resulted in the incorrect conclusion that there is a credit rating scheme in operation in this country and that almost any type of imperfect financial transaction will lower one’s credit score. In reality the only credit referencing procedure currently in existence is administered by a small private organisation, the Irish Credit Bureau (ICB), with much less scope than that of its US counterparts. A real lack of knowledge exists as to the powers of lenders to look into the financial history of citizens and as a result the actions of the ICB do not come under sufficient scrutiny.

The ICB is not affiliated with the Government in any way. It is owned and financed by ICB members, mainly financial institutions. The bureau operates a database that contains information on the performance of credit agreements between financial institutions and borrowers. Lenders register these details with the ICB on a monthly basis. Each time you apply for credit from one of these lenders, they can search the ICB’s records for an account of your performance under previous credit agreements with other lenders. Notably the ICB does not score or rate citizens on the basis of their credit history but instead just provides information relating to each credit transaction that a person has entered into.

So what do our files actually contain? Most credit agreements are covered, including mortgages, all types of loans and leasing and hire purchase agreements. All instances where an individual has missed payments are recorded. Credit card details are also included. In the past, these were supplied only if a credit card was revoked or cancelled. Now lenders have the option of supplying all and any information relating to credit cards, including a cardholder’s opening and closing balances. The only saving grace here is that because of the nature of credit cards the ICB waits thirty days before any negative records relating to card use are stored. In all other cases information is kept on the ICB database for the full term of the agreement regardless of whether it concerns a three year personal loan or a thirty year mortgage. When an agreement is either paid off or formally written off it is still stored for a full five years after the date of termination. This rule applies irrespective of whether the debt has been completely repaid or the borrower has failed to complete payment.

What is not covered by the ICB? Overdraft agreements are thankfully excluded, with the exception of those overdrafts that are the subject of legal proceedings. If borrower and lender have come to an agreement to postpone the payment of a loan, this will not be recorded either. This means, for example, that negotiations for payment moratoriums or interest-only periods under the Code of Conduct for Mortgage Arrears would not be included on an individual’s credit file.

The lender is tasked with recording the borrower’s performance in making repayments and this information is then sent to ICB where it is stored. This is a point of issue; can we really expect our lenders to faithfully represent our credit history? It would be preferable to assign an impartial organisation, even an independent arm of the ICB itself, with the task of reviewing our performance in credit transactions.

A second worrying aspect that I stumbled across while researching this piece is that virtually every person who agrees to a credit transaction with a financial institution signs away their information to the ICB without knowing it. Those lengthy terms and conditions that must be signed to activate a loan or credit agreement, rarely read in full by consumers, almost always contain a declaration of consent that allows the ICB to collect and store data on that financial transaction.

The final issue that I have with this system relates to the number of private investigative firms that offer a credit check service for a fee; google All Ireland Investigation or www.checkback.ie to see for yourself. The ICB database is designed solely for the benefit of partaking financial institutions and should not be accessible by other groups. We do not consent for investigative firms to have access to our financial information even if we sign an ICB declaration of consent as part of a loan agreement.