To close or not to close...credit rating help

maurice28

I currently have a credit card with NatWest with a £700 limit, of which I am currently using about £450. My payment record on this card for the past 12 months or so has been fine, apart from last month when I inadvertently missed a payment. This resulted in a ‘1’ status being placed on account with Experian.

I can now probably afford to pay off the full balance of the card. My question is around my credit rating. In order to improve my credit rating the most in light of this missed payment, would it be best to:

(a) Pay off the full balance of the card, and close the card down? (I don’t think I would miss it that much if it went)
(b) Pay off the full balance of the card, but leave it open?
(c) Keep the money to pay off the full balance to one side, and pay it through bit by bit to keep a good payment pattern going?

I’m not sure which would look better on my credit rating – a credit card which is settled, but which the second to last status was a ‘1’ (after a fairly long run of zeroes) or a credit card that is still open with payments still being made against it?

I also have an overdraft with about £700 on it, and another one that I dip into at times if I use all my wage up. I hope to have all my debts paid off by September.

Any help greatly appreciated!

CannyJock

One '1' in an otherwise clean report won't make any difference.

If you're paying interest on the balance of the card or overdraft then the sensible thing to do is to clear whichever is charging you the highest APR.

Maintaining a history of active credit with no missed payments will count in your favour, but not worth paying interest just to achieve that.

maurice28

CannyJock wrote: »

One '1' in an otherwise clean report won't make any difference.

If you're paying interest on the balance of the card or overdraft then the sensible thing to do is to clear whichever is charging you the highest APR.

Maintaining a history of active credit with no missed payments will count in your favour, but not worth paying interest just to achieve that.

Thanks for that response. I guess my question is which of these scenarios looks better on a credit report:

Scenario A
An overdraft with a limit of £2000 (of which £700 is being used) and a credit card that is now settled (with a '1' status on the second to last month before it was settled)

Scenario B
An overdraft with a limit of £2000 (of which £700 is being used) and a credit card that has a £0 balance, with a '1' status in the last couple months, but is still open (leaving me with access to another £700 worth of credit).

I am planning on reducing the £2000 overdraft down to around £500 quite soon

maurice28

maurice28 wrote: »

Thanks for that response. I guess my question is which of these scenarios looks better on a credit report:

Scenario A
An overdraft with a limit of £2000 (of which £700 is being used) and a credit card that is now settled (with a '1' status on the second to last month before it was settled)

Scenario B
An overdraft with a limit of £2000 (of which £700 is being used) and a credit card that has a £0 balance, with a '1' status in the last couple months, but is still open (leaving me with access to another £700 worth of credit).

I am planning on reducing the £2000 overdraft down to around £500 quite soon

Any views gratefully received!

Moggles_2

There's a difference between late payments and missed payments. Fortunately, it sounds as though yours was the former.

Payments that are missed altogether can wreck your credit rating for years, but late payments are viewed as negative only if you attract more than a couple in a short space of time. Even then, the effect is fairly short-lived. The data drops off your Experian file after 36 months and from Equifax in 48 months.

That said, if you close down the account, the final 36/48 months of payment history stays on file for 6 years from the date the account was settled. So, if you want your late payment to disappear from view in the shortest time possible, keep the account open.

Moggles_2

To answer your question, as you're planning to reduce the use of your overdraft and seem to have just the one credit card, I'd plump for scenario B