Gaining a mortgage with existing credit agreements

Crap_with_money.com

Hi all,


In about 6-8 months I'll be applying for a mortgage with my OH, and was looking for some advice on what to do with regards to our existing credit agreements.

A little bit about us:

I'm a teacher, OH is a policeman, both in fulltime permanent employment and with a combined income of approx £59k. We have £15k in savings set aside as a deposit, and would be looking for a property with a value of no more than £100k (ideally less!).

We do have a bit of debt.

Me

Car finance: £154/month, due to expire Nov 2014
Bank Loan: £118/month, due to expire Aug 2014
Credit Card: £0 balance, £1500 limit,
Store Card: £0 balance, hardly ever used and always cleared at the end of the month.

OH

Bank Loan: £158/month, due to expire Aug 2014
FD CC: £0 balance, £3000 limit, never used
Natwest CC: £0 balance, £2000 limit never used
Argos Store card: £0 balance, £750 limit never used
Outfit Store card: £0 balance, £350 limit never used

I'm wondering is it better to have credit and show that we're able to manage it (I.e I gain points for spending on my CC, so I often shop on it, but always clear the balance by DD before the statement date), or would it be better to close down all of the unused credit agreements?

2 of the CC's had a balance on them until Aug '11 and were in interest free deals, but we've now cleared them off and they've been sitting unused since then.

Thanks in advance!

Laura

MRG

You shouldn't have any problem with your credit if you haven't had any adverse credit so don't panic about applying for a mortgage.

You have a good joint income so lenders affordability should also be fine with the debt you currently have ie loans and bits.

It's not good to have lots of unused credit accounts though, definitely worth closing those down if your not going to be using them.

Crap_with_money.com

We did go into an unplanned OD last month (£4 for 1 day!) down to an oversight on OH's part, but other than that all of our bills are paid in full and on time. Is that likely to effect our application?

Crap_with_money.com

Also - is it better for me not to use my CC at all rather than spend on it and clear the balance? We're getting married this year, so I tend to pay for things on the CC then clear with the next wage rather than dip into wedding savings (OH thinks I'm stupid but psychologically I'd prefer to have the security of the savings).

Joe_Bloggs

MSE Martin has a briefing on why it is smarter to pay for things with a credit card , based upon the protection offered by section 75 of the Consumer Credit Act.

J_B.

Crap_with_money.com

Thanks joe_bloggs. I've read similar before, I first started shopping on CC's rather than Debit cards a few years ago because of various points Martin's made. I just wondered if shopping like that has any impact on a mortgage application? Will it be viewed as an on going financial commitment, and is it therefor better to stop and just use cash/debit cards for future purchases?

Thanks

L x

Yorkie1

So long as you clear the balance every month it shouldn't have any effect at all.

Joe_Bloggs

It is important to generate a history of regular borrowing and repayment that would leave an impression of a trustworthy subject worthy of future credit. There is no need to pay interest to prove that you are a safe bet for credit.

J_B.
.

Thrugelmir

Consider clearing your loan(s) from your savings. Then replenishing your savings by saving that outgoing. Little point in paying for expensive debt unnecessarily.

Crap_with_money.com

Thanks for the replies!

Thrugelmir, we did think of that, but we've moved home with my mum to allow us to save for the wedding as well as clear cc/od debts. We'll have been here 1.5 years by the time we're moving out. Our current debts are manageable and we're happy that we at least have a fixed end date for them. Unless the current loans would stop us getting a mortgage, we're quite happy to leave them as they are and move out.

Thanks all for the advice!

Laura

MRG

Crap_with_money.com wrote: »

We did go into an unplanned OD last month (£4 for 1 day!) down to an oversight on OH's part, but other than that all of our bills are paid in full and on time. Is that likely to effect our application?

Won't be an issue, especially if your mortgage application is likely to be when you say it will be.

You do have 6 credit cards with zero balance, unused credit to that level isnt a great idea, it won't effect a mortgage application.

I'm not saying close all 6 but close the older ones where the 0% deals have run out and your not likely to use them etc.