Credit Score and Available Credit

ministrymason

In the next month I want to take out a personal loan for 7.5k for 2 years. I have never had a loan before and I have a fair/good credit rating. I earn £35000 and I have the following cards:

Credit Card – £4500 limit. Pay off the £1000 balance tomorrow.
Credit Card – £2500 limit. Pay off the £500 balance tomorrow.
Overdraft – £3000. Haven’t used in a couple of years.

Should I reduce my overdraft because I never use it so my overall available credit is lower. Or should I keep it so its higher? There are contradicting posts about it.

Should I apply for the loan once I have completely paid off all my cards and they appear on my credit report as £0? Will this increase my score.

Any help appreciated. Thanks

The_Boss

If your accounts have been well maintained then there shouldn't be a problem with the figures you have quoted (including the amount you wish to borrow).

You do not have a credit rating or score. Different loan lenders will score you differently.

If you changed the overdraft limit and paid off your cards then this data may not reach your credit file before you wish to apply for the loan.

ministrymason

I have never missed a payment and have a couple of years of credit history.

Do you think lowering my OD limit is a good idea? I can wait for the information to appear on my credit report if it will be beneficial.

I also bank with First Direct and my £4500 limit card is with Halifax. Do you think it would be more likely Im accepted if I apply for a loan with either of them? I have done a search on MoneySupermarket and it says Low against all the loan providers.

The_Boss

Low chance of success or low risk?

Going with your own bank is usually a good plan since when they score your application they will also likely use internal data.

As for the overdraft...you don't use it so no harm in reducing to say £500. But lenders will be able to see that you don't use it.

ministrymason

Low chance of success

Maybe ill wait a couple of moths till the debt is cleared on my cards then try with my own bank

Cycrow

as a general rule, your credit amount should not be more than 50% of your annual salary

so on your salary you should have no more than £17,500 credit.
so with the 7.5 loan, u'll be pretty much on the limit.

I think reducing your available credit abit could help, esspecially if your not using it.

Having lots of unused credit can be a bad thing
The banks will see that you have about 10k available credit so will wander why you need another 7.5k.

ministrymason

Cycrow wrote: »

as a general rule, your credit amount should not be more than 50% of your annual salary

so on your salary you should have no more than £17,500 credit.
so with the 7.5 loan, u'll be pretty much on the limit.

I think reducing your available credit abit could help, esspecially if your not using it.

Having lots of unused credit can be a bad thing
The banks will see that you have about 10k available credit so will wander why you need another 7.5k.

I have paid off all my cards this morning. So will take a while for them to appear on my credit report. Do you think Im better off waiting and reducing my OD so i only have 7k in unused credit or just apply for the loan today?

sfax

I wouldn't reduce any limits on any cards or your OD limit unless you know for a fact that it is causing you to be rejected. Very easy to reduce limits. Not so easy to get them increased again and your debt utilisation will increase with reduced limits.

For reference I have about £28k in unused credit across 5 cards and a £2k unused bank overdraft. Debt utilisation is about 35% and no problems getting new cards with limits of £5k+ (which I do at a rate of about 1-2 a year)

The_Boss

I posted a big thread a few years ago about how reducing my credit limits caused serious damage to my ability to get future credit.

Also, the quoted 50% of your salary threshold as mentioned above doesn't always apply. Combined with low debts, I can't see there being a big concern over the OP's credentials as things currently stand. I was accepted for a loan when the amount I wanted was just under one third of my salary with around 50% of my salary taken up with credit card limits (of which were either empty or had small balances).

OP - if you apply today and are rejected then you can still apply in a month or two. How many other credit searches have you had recently and in the last 12 months?