Paying off loans/taking on new loan before applying for a mortgage

jimbo83

Hi guys/girls

Just looking for a bit of advice really.

At the moment i have a couple of cards with around 2500 on between them and a graduate loan for about 1200. Basically, i am looking to pay these off from my current account over the next few months whilst i save a deposit for a mortgage.

Now, it may be about 12 months before i start applying for mortgages, will the paying off of these accounts affect my credit rating (it is 998 now - excellent)? I am wary of my credit record declining if i pay them off and am not making any payments, but on the other hand i can save loads of interest which i can put towards the deposit if i pay them off. What do people think?

However, seperate to this scenario i was also thinking about getting a new car and getting a new loan to pay for part of it. If i did his, will it look bad to a mortgage lender if they see a new loan for 9-10k recently taken out?

Any help/advice on the two scenarios would be great.

Thanks

CLAPTON

any debt will be taken into consideration by a mortgage lender as it will affect your ability to repay the mortgage

paying off existing debt will increase your ability to get a mortgage

best to continue to use the CC and pay in full each month as this will maintain your good credit rating

KiKi

jimbo83 wrote: »

will the paying off of these accounts affect my credit rating (it is 998 now - excellent)? I am wary of my credit record declining if i pay them off and am not making any payments, but on the other hand i can save loads of interest which i can put towards the deposit if i pay them off. What do people think?

However, seperate to this scenario i was also thinking about getting a new car and getting a new loan to pay for part of it. If i did his, will it look bad to a mortgage lender if they see a new loan for 9-10k recently taken out?

Just echoing what Clapton has said. No, paying them off will not adversely affect your ability to get a mortgage. You have cards, you've spent on them. Pay them off and save yourself the interest - madness to do anything else! For a mortgage you want to be able to demonstrate an ability to pay off your debt without having any. This will stand in your favour.

Re a loan, it will be taken into consideration when you apply for a mortgage. So if, for example, you would normally be granted a mortgage for £150K, a loan of £10K would mean that a lender only offers you £140K mortgage. Simplistic explanation, but you get the point.

Of course, cars don't have to cost £10K, so bear that in mind.

KiKi

jimbo83

Thanks guys.

If im looking to pay off the current graduate loan and the two cards. Might it be advisable to pay off the graduate loan completely and pay off most of the cards, but maybe keep a few hundred quid on one and pay that monthly to keep the credit file "ticking over" with payments?

CLAPTON

you are being too complicated
pay off the debts with the highest apr first

keep at least one CC active; use it regularly and pay in full each month ... that will show on your credit report and will maintain your good credit record

jimbo83

CLAPTON wrote: »

you are being too complicated
pay off the debts with the highest apr first

keep at least one CC active; use it regularly and pay in full each month ... that will show on your credit report and will maintain your good credit record

Ok thanks for this Clapton

It basically goes in order:

Card 1
Grad loan
Card 2.

I think based uon that i will clear card 1 then the loan amd keep a little on card 2.

Also, how quickly are the credit files updated? ie how soon will the loan show as settled on the my file after i've paid it?

Thanks again

KiKi

jimbo83 wrote: »

I think based uon that i will clear card 1 then the loan amd keep a little on card 2.

Hi there

You really, really don't need to 'keep a little' on a card - that won't help you. Use it to buy groceries or something and PAY IN FULL (as Clapton has said).

Keeping a little of an old debt and only paying the minimum is not as good as regularly using it and paying it off in full every month.

KiKi

jimbo83

KiKi wrote: »

Hi there

You really, really don't need to 'keep a little' on a card - that won't help you. Use it to buy groceries or something and PAY IN FULL (as Clapton has said).

Keeping a little of an old debt and only paying the minimum is not as good as regularly using it and paying it off in full every month.

KiKi

Hi Kiki

So you think he best thing to do would be to clear what is on them at the moment and then just use it and pay in full each month on one of the cards?

Cheers

riverboat2001

I had a settled account show up after about three weeks.
Also when we applied for our mortgages we had no CC's or debt

KiKi

jimbo83 wrote: »

Hi Kiki

So you think he best thing to do would be to clear what is on them at the moment and then just use it and pay in full each month on one of the cards?

Cheers

Yes, absolutely. Much better to show regular use and FULL payment than an old debt that you're only clearing with minimum payment.

Just put your groceries on there each week / month or something.

KiKi