Loan and debt advice ??

becmarv

Hi all,

First time posting here .!

So to cut a long story short, 1 (almost 2) years ago my partner and I fell on a really difficult time, we lived in private rented accommodation in central london, that when went wrong, almost crippled us financially as our landlord was a jerk, then my partner had an accident at work which lost 2 months salary, and then to top that all off our dog (the equivalent of our baby) was diagnosed with a critical condition and needed emergency surgery, our insurance providers of course managed to worm their way out of paying for it and left us to fit the £8000 bill.

So with all that going on, myself and my partner made the silly mistake of raking up about £21,000 debt.

Fast forward to now and we have managed to pay off the majority of that debt with only £5500 left to pay And our circumstances have now changed drastically for the better.

Everything is being paid swimmingly and steadily with the exception of 3 lenders, they're very small amounts however stupidly we let these default, so of course they haven't been paid for a while.

I want to pay these off however my question is, which of the following options below would have the best or most positive reflection on our already low credit score?

1) Pay off the whole amount in one lump sum immediately
2) Call to set up a payment plan and pay them off over 3 direct debit payments each (as I said they're not that much so wouldn't take long to clear) .
3) Call them and see what the settlement amount is as I keep getting letters to say that they can give me a discount to pay it now, but I don't want that to appear negatively on my credit file

I know we were silly for raking up this debt and we fully take responsibility for it, times were just very bleak and difficult at that point, but we have done our best to make sure that things are being settled.

We want to apply for a mortgage this time next year so ideally wish to have all of the debts completely paid off by June this year, why advice or recommendations on mortgage likelihood and credit boost for mortgage applications will also be highly welcome.

Thanks for your time and help.

[Deleted User]

The first thing is to ignore your credit score.

You need to build a better credit history and demonstrate you are low risk to lenders. The scores are made up and don't reflect this.

Carrying debt, unless at 0%, shows you spend more than you earn. So your priority is to clear the debt as quickly as possible. Since you've already defaulted on the debts, you may as well go a settlement figure, as long as it shows as a settlement.

You also need to build a record of managing credit. The best way is to get a credit card, use regularly and clear in full each month. No over limits, no late payments, no withdrawing cash.

A year sounds optimistic for a mortgage, so make sure you engage an adverse credit broker when the time comes.

becmarv

Thank you for such a quick reply.

Aside from those 3 lenders we have been making regular payments on tine to all lenders so that's definitely a positive. :j

Okay great, we will look for settlement figures then, I was just dubious as these sometimes apparently show up as partially settled and I wouldn't want that to look worse than it does.

We've applied for the CashPlus Credit Builder card, unfortunately we aren't able to get any other credit cards at present

Do you think a year is plausible or are we wishful thinking.? We've been in touch with a mortgage broker already however we haven't needed him as much yet.

System

Unfortunately time is the only healer of a poor credit record.

Whether or not a year is plausible depends on when the last negative on your credit file was recorded. Usually you want at least 3 clear years and even then you'll get penalised with the rate you are offered. If you can't even get a credit card it is very unlikely you'll be getting a mortgage.

Personally I'd be planning to be renting for a few years however it isn't all bad, it'll allow you to save towards a larger deposit which hopefully will mean a lower LTV and therefore a lower interest rate when you do eventually get a mortgage. Also the way Brexit is going you may find the houses you're looking at are actually cheaper in a couple of years.

becmarv

Unfortunately our circumstances won't allow us to keep private renting for another few years. We have a pretty sweet deal where we live now because the landlord is losing the lease so we have 2 more years left before we have go move. Living where we live now is the only way we can actually save for a deposit, if we moved into different private rent we wouldn't be able to save at all. We already have a LISA set up so have that in motion already.

We plan to use the help to buy equity loan and have a bigger than 5% deposit to help us over. Fingers crossed we will be able to make things work this time next year.