Building my credit rating back up...

dfw87

Hi all,

Please do redirect me if this isn't the best place, however I am a debt-free wannabe (with a diary) so this is my most-used board!

I currently have a loan (£20,043) that I am repaying (have made one repayment so far) which my Mum took out for me - this is not in my name. This loan was used to pay my credit cards/overdrafts and so 'technically' I now have no debt attached to my name. Obviously, I have this debt but it is attached to my Mum's name rather than mine. I hope that makes sense!

My current situation (LBM was only 1.5 months ago!!) is a couple of hundred in the bank and almost £1000 saved in an ISA. I am looking to change this from a regular ISA to a Help To Buy ISA when I have the initial £1200 (not long!) and to ensure that I put in £200 a month, and have another separate savings account. I have yet to decide whether I will save for a house or use this money to instead pay the loan off early - I can see the benefits of both and I think it'll just depend on my circumstances at the time.

My question (sorry it took so long to get there...!) is:

How can I build my credit rating back up?

I used to have 3 credit cards, always paying the minimum payment and was in my overdraft in 2 different bank accounts. Now, I have a current account and 2 savings accounts, all with the same bank. No credit cards and just the personal loan with my Mum.

Will my credit rating just gradually work its way back up as I grow my bank account and stay out of debt? Or, do I need to actively increase it? Someone suggested getting a credit card (I would wait a while) and just buy something like petrol on it and pay it off straight away?

I am just very aware that my rating is poor at the moment and I want to minimise any issues in the future!

Thanks in advance x

lynz68

I wouldn't be looking to do anything at the minute. You need to get use to living within your means after all you have only just paid the credit cards and overdraft. This won't be reflected on credit report yet.

If I was your mother and you had the cheek to get another credit card so soon I would be mighty !!!!ed off.

EssexHebridean

You DO still have all those debts - you've just shifted them, hidden them under a rock if you like. One of the reasons we (almost) always advise against consolidation on here is that people feel exactly as you do that they've "cleared" their debts into "just a loan" and so the problem is sorted - it isn't though, and unless you've gone through the full process of cutting your costs right back, clearing things off, and getting out of the credit trap fully with a budget that works for you, you haven't really taken the steps to ensure that you won't find yourself back in the same situation, only worse, down the line.

Your priority right now needs to be to throw every penny you can at clearing down that loan that your Mum currently has responsibility for. Please don't be tempted to get a credit card for spends at the moment even if you DO set to pay it every month, the temptation will still be there and imagine how dreadful you will feel if in six months time you've dug yourself back into a hole and can no longer honour the payments to your (Mum's) loan. It may even be that by paying that loan off early you can reduce the overall amount payable - so get a budget in place, work out exactly how much spare money you have each month, and look at putting every penny either against the loan, or at the least paid into a high interest (regular saver or similar, perhaps) account for the time being - once you've done that for a year and proved you can do it, then it perhaps the time to start thinking a bit more about the future. Put the foundations in place and make sure they're solid first though!

dfw87

lynz68 wrote: »

I wouldn't be looking to do anything at the minute. You need to get use to living within your means after all you have only just paid the credit cards and overdraft. This won't be reflected on credit report yet.

If I was your mother and you had the cheek to get another credit card so soon I would be mighty !!!!ed off.

She was actually one of those who suggested that I got one in order to build it back up... but thanks.

dfw87

EssexHebridean wrote: »

You DO still have all those debts - you've just shifted them, hidden them under a rock if you like. One of the reasons we (almost) always advise against consolidation on here is that people feel exactly as you do that they've "cleared" their debts into "just a loan" and so the problem is sorted - it isn't though, and unless you've gone through the full process of cutting your costs right back, clearing things off, and getting out of the credit trap fully with a budget that works for you, you haven't really taken the steps to ensure that you won't find yourself back in the same situation, only worse, down the line.

Your priority right now needs to be to throw every penny you can at clearing down that loan that your Mum currently has responsibility for. Please don't be tempted to get a credit card for spends at the moment even if you DO set to pay it every month, the temptation will still be there and imagine how dreadful you will feel if in six months time you've dug yourself back into a hole and can no longer honour the payments to your (Mum's) loan. It may even be that by paying that loan off early you can reduce the overall amount payable - so get a budget in place, work out exactly how much spare money you have each month, and look at putting every penny either against the loan, or at the least paid into a high interest (regular saver or similar, perhaps) account for the time being - once you've done that for a year and proved you can do it, then it perhaps the time to start thinking a bit more about the future. Put the foundations in place and make sure they're solid first though!

Thank you - I have already reduced every payment that I can and have a full budget in place. I have plenty of money 'leftover' at the end of each month which is going straight into savings - I just previously would have spent this on paying interest and a ridiculous food/clothes shopping habit. I can completely live within my means, I just wasn't. I know it's only been about 2 months but I do feel that I have turned a corner and it being in my Mum's name actually spurs me on.

Thanks for the advice :j

EssexHebridean

So limiting your savings money to just building an emergency fund for the time being and throwing everything at the loan - how fast do you anticipate being able to clear it?

It's great that you're so motivated but as you've acknowledged yourself it IS very early days and trust us, the motivation can flag a bit over a long haul, which is why we'll generally suggest clearing debt fully before looking into taking further credit.

dfw87

EssexHebridean wrote: »

So limiting your savings money to just building an emergency fund for the time being and throwing everything at the loan - how fast do you anticipate being able to clear it?

It's great that you're so motivated but as you've acknowledged yourself it IS very early days and trust us, the motivation can flag a bit over a long haul, which is why we'll generally suggest clearing debt fully before looking into taking further credit.

My loan repayments are £334.05 a month and this is spread over 5 years. In the last 6 weeks, I've saved almost £1000 so if I continue at this rate (no reason I can't) then I think I can at least halve the 5 years, maybe more. I am due some inheritance, no idea how much, which can also go straight towards this.

The only reason for looking into other options with the credit card was to get the rating back up - I had no intention to use it as an alternative way if paying - it would have been a case of buying £20 petrol and transferring the money straight away to pay this off.

norsefox

Your reason behind getting a CC was understood. The point being made is that if you were capable of getting into £20k of debt once, you're probably capable of doing it twice. That's why 'consolidation' loans are so risky. You've not actually achieved anything yet...

Do what you've been doing for 6 months and then review. Saving has to become a habit, and you owe it yourself and your mum to make sure this happens.

Like everything else it's an opinion. I'm unsure as to why you have asked on here otherwise, unless you're just looking for positive reinforcement.