Have I been monumentally naïve

boringneil

So my wife and I are sick of renting and are desperate to be homeowners. The snag is we each have(had) several thousands £ worth of defaulted debt from loans, credit cards, mobile phones and payday loans (yeah I know).

Got my credit report and mother offered to help. In one day, we cleared about £7500 of defaulted debt with about £3000 remaining using her debit card. These debts all now show as settled and closed on my report.

I expected this would cause some sort of miraculous jump in my credit score and success at gaining credit.

This just hasn't happened.

I read on the web that debts drop off after 6 years anyway... I need to know: have I just wasted £7500 of mums money as well as the £250 a month I'm paying her back?!

Be honest I can take it.

Furthermore, Dad is offering to clear the remainder in one go on his credit card. Is this equally as pointless or is it worth doing?

Thanks

[Deleted User]

The honest answer is - your credit score means absolutely nothing.

No one sees it apart from you and it has no relevance. It's a gimmick, basically. A person's credit history can't be summed up in a three figure score.

Carry on clearing your debts . Lenders will view you much more positively.

boringneil

Thank you zx81. Let's forget the credit score then: is the only significant change they can see going to occur in 6 years when these have all disappeared? Which takes me back to the issue of settling these debts being pointless?

Superscrooge

Clearing your debts will help improve your credit history. But credit providers also want to see that you can now use credit responsibly.

After six months of using credit responsibly. No more defaults or missed payments, and credit providers will then start to regard you as lower risk.

[Deleted User]

A settled debt will look better to lenders than an unsettled one.

The defaults will still hurt you, but you have a choice of a lender seeing someone who defaulted and then paid their debts, or someone who spent someone else's cash and ran away.

Which do you think a lender would rather give a mortgage to?

Lrimas

Saying that your credit score doesn't mean anything isn't correct.

Lenders can't see it, but it is a good indication of how attractive you are to lenders.

It's like a beauty contest. We can't tell if a contender will win (that depends on the preferences of the judges) but we can tell if someone stands no chance of winning....

On that note, paying off your debt would have improved your affordability. I recommend going to see a broker. They will be able to tell you if there are any lenders willing to lend to you as things stand now.

shortcrust

A default is a default regardless of whether or not the debt has been settled. You didn't meet your obligations and lenders will act accordingly. Paying a debt ages after it was due isn't going to have a massive impact on your ability to get a mortgage. Whilst paying your debts is always a good thing, if you weren't being chased for the money your parents cash would have been more usefully spent on helping you with a deposit after waiting for the defaults to drop off.

boringneil

Thank you all for your replies. I'm wondering though if the assumption here is that I'm going to try and get credit sometime soon. I'm not - let's assume I'm not applying for any form of credit until 6 years have passed. In this case, lenders have no idea whether I paid off defaulted debts or not as these debts are no longer on my report, yes?

shortcrust

You effectively have a clean slate when the defaults no longer show on your report, but the problem is a completely clean slate looks suspicious to lenders. You want to have a good credit history in place when the defaults vanish. It would be a good idea to try to get some credit as soon as you can. Something like an Aqua card of a Barclaycard Initial (I might be out of touch...). Use it regularly and pay off in full each month.

[Deleted User]

Once defaults are 6 years old, the whole account will be removed from your credit report.

As the 6 year point gets closer though, the chances of a CCJ increases, which would reset the 6 years, so watch out for those in the post. If you clear within a month of the CCJ, it will be removed from your file.

jonesMUFCforever

Well done on clearing the debts but in reality you have merely passed them on to 0% as you are still paying your parents.
Be careful if you do apply for a mortgage as you will have to be honest about any debts whether commercial or private,