How does he better his credit rating?

cavity123

Hi everyone,

My friend has asked me to help him as he wants to apply for a mortgage for his first home. He has one late payment in april 2014 against his credit file for a catalogue company (studio?) - because his partner didn't pay on time and one late payment in jan 2013 - again the studio catalogue company. He got so peeved off with her, he closed the account down, but that bad mark is showing. Other than that, he is clear and has paid everything else on time. He has no debt outstanding and has no credit cards.

He does have a £4000 overdraft facility with his bank though.

Here are the questions:-

1. Will the above mentioned problem affect his mortgage chances, i.e is it classed as adverse credit?

2. He hardly uses his overdraft facility, so do you recommend that he reduces the amount if it's not needed?

3. What can he do to better his credit rating?

Thank you

thebritishbloke

1. Shouldn't really be a problem.
2. Yes.
3. When's he looking to apply for a mortgage? If it's soon, there's not much you can do. If it's in 6-12 months, then he should get a credit card and pay it off in full every month to illustrate responsible borrowing to future lenders.

cavity123

Thank you thebritishbloke.

He plans to apply for a mortgage in approx 6-8 months time. The problem with getting a cc is that he's only being offered the ones with an extremely high interest rate.

LplateSaver

cavity123 wrote: »

Thank you thebritishbloke.

He plans to apply for a mortgage in approx 6-8 months time. The problem with getting a cc is that he's only being offered the ones with an extremely high interest rate.

The APR is irrelevant if you pay in full every month.

cavity123

I do apologise, but could you please explain a bit more?

Lets say he's takes a card such as Capital One that is for example 34.9% APR and does a balance/money transfer from his credit card to his current account of £1000. How much does he have to pay over say 6 months?

MadProf

You'll find that the sub-prime products from these issuers generally do not offer money transfers. For BTs there'll be a fee associated with doing so but no further interest charges until the offer expiration.

It's unwise to spend on a card where you've done a BT or MT as you'll incur interest from the day of that spend.

To build credit, you'd simply spend on the card directly - i.e. use it for your regular grocery shop or fuel and then pay the statement balance in full each month.

Edit: Just checked and Capital One seems to have a 34.9% APR card that offers a 0% BT until Feb 2015 with a 3% fee. So in your case, he can do a BT only and no MT (but it's pointless as there's no credit cards to transfer a balance from).

LplateSaver

cavity123 wrote: »

I do apologise, but could you please explain a bit more?

Lets say he's takes a card such as Capital One that is for example 34.9% APR and does a balance/money transfer from his credit card to his current account of £1000. How much does he have to pay over say 6 months?

Now I'm the one confused. Why does he need to do a transfer to his current account?

He uses the cc to pay for bills/food/petrol, leaving what he would have used to pay in his current account/savings account then pays when statement arrives in full and he'll pay no interest while his credit rating will improve.

cavity123

I've understood now, thank you. No, your right he doesn't need the money to transfer...just thought it might look better if he did that, but i guess your right...so he gets a cc and uses it to purchase stuff and then pays it off every month.

Oh his current circumstances are that he's not working at the moment, but has got a job which will start in 3 months time. Can he still apply? What CC can you recommend?

MadProf

Does he have other sources of regular income? Nobody's going to lend you money if you don't have a means to repay it.

It may be best to start earning a salary for ~ 3-6 months then apply for one of these sub prime cards

- Barclaycard Initial
- Capital One
- Vanquis

cavity123

yes, kind of...his DLA child tax credit and his ESA...thats about it.

MadProf

And anything on this credit file like a mobile phone contract or settled agreements to demonstrate an ability to handle and repay credit?

I'm not sure whether unemployment immediately disqualifies your eligibility for these cards so I'll leave that up to someone more versed to respond.

A single credit search wouldn't do too much damage now, so if there's a desperate need to start building credit have him apply for a single card. If that gets declined, follow the previous advice and wait until having a full time job for 3+ months.