Money talks: How long does it take to rebuild a good credit history?
Well done for taking control of your debt, this is not always easy and certainly means many sacrifices. Having a bad credit history can be a great source of stress and can greatly hinder individuals from reaching any kind of financial stability but now that you have sorted out your arrears you have already kick-started your journey to mortgage approval.
The best thing to do first, is to check your current credit rating with The Irish Credit Bureau (ICB). This organisation is responsible for maintaining a database of information on the performance of all credit agreements in Ireland. Your personal credit record - good or bad - will remain on this database for a total of 5 years after your loans have been cleared. Under the Data Protection Act 2018, you can apply for a copy of your own credit report to check your current rating at www.icb.ie.
You do not mention the extent of your arrears in your letter so this will greatly affect the official categorisation of your credit rating and how it may affect any credit applications moving forward.
Do not worry though, as it is not just this report that will affect the bank's decision on whether to grant you approval. They assess each application on a case-by-case basis so if your arrears were minor and you only missed a few payments here and there, they may look at this as a 'blip' rather than a signal that you might have trouble meeting mortgage repayments going forward and grant approval anyway.
Most banks tend to be sympathetic and if you missed a few payments due to an unexpected situation such as redundancy or bereavement, they would take this on board and your mortgage will normally be approved under such circumstances if everything else is in line with their requirements.
Needless to say, if you simply stopped making payments and fell out with the institution and legal action was taken against you, then this is obviously a lot more serious and will negatively affect your approval chances.
If your main priority is to secure mortgage finance soon, then you should now concentrate on fully rebuilding your credit record. How difficult this will be or how long it will take will depend on the seriousness of your payment history.
Either way, I would advise you to do the following:
- Stick rigidly with the payment plan as laid out by your Credit Union on your current loan.
- Set out a strict budget for yourself and try and save as much as possible from now on. This will partially be used for your deposit and I would open a savings account for this – this will clearly show lenders that you can live within your means and that you have excess income left over for savings.
- Clear any other small debts you might have including credit cards or store cards.
- Limit any frivolous or unnecessary spending.
When the time comes to apply for your mortgage, I would strongly advise you to engage with a professional mortgage advisor who has agencies with all the major institutions. Not only will this give you access to the best rates available, but they will also know from experience which banks may possibly treat your arrears in a more sympathetic manner if this is deserved.
Finally, if granted approval, please take the time to evaluate the options that are presented to you carefully as 25 to 30 years is a long time to be tied into a financial arrangement and you need to make sure that it meets your personal requirements.
- Carol Brick, Managing Director of HerMoney has over 20 years of experience in the provision of professional Financial Advice see hermoney.ie
