To reduce debt/borrowing or not to reduce debt/borrowing

Graham1982

Hi:

I am unsure if I have written this post in the correct place alas here seems as good as any:

I am finding my credit score a little difficult to fathom and have read several posts on here which provide lots of information but it seems to be conflicting.

My personal circumstances are as such:

I privately rent and have no savings. My earnings are approx 37k.

I have no CCJs or defaults.

I have a credit card bill of about 7k and I have not been clearing this balance. I have been paying slightly over minimum payment for months.

I have an Argos store card which I have used to purchase a washing machine for £300. This is on twelve months interest free.

I have a loan for about 1k that I am making regular repayments on and currently owe circa £600.00

My current account also has an overdraft which was left over from my time as a student. This was about £1800 which I gradually reduced over ten years to £800 and have recently reduced it to £400. It is my intention to remove overdraft altogether by end of January.

In sum:

1k loan will be finished by circa April
Overdraft gone by end of January.

Could someone please advise what is the best course of action to improve credit score and credit worthiness going forwards?

I am of the understanding that if you are at limit of your credit this reflects badly. Alas I decided to start debt removal with overdraft because I don't need it. I thought that within a few months this would be seen as a positive step as it looks like I am managing my finances etc. Alas, it would appear that by reducing my borrowing potential I am still at the limit of my borrowing so I am not helping myself.

Any advice greatly appreciated.

Thanks

Graham

[Deleted User]

First off ignore the score. It’s not a real number and no lenders use it.

Get what you currently have cleared off to zero ASAP.

Then use the credit card for usual monthly purchases and pay if off in full each month after getting the statement

Dobbibill

Take little/no notice of the score.


All your lending will be building up history of borrowing/paying back.

Reduce the debt ASAP as you are running high utilisation of debt to credit ratio.

Every time you reduce your overdraft to what you need - you are creating a 100% utilisation figure for it. EG - £400 OD used on a £400 limit = 100%. £400 used of a £1000 OD = 40%. So as far as any potential lender sees you are using all your available credit.

The score will bounce with any changes. Try not to get too caught up in the score monitoring game, check all the data on your reports are correct and accurate.

molerat

The question to be asked is why, on £37K, do you have no savings and are borrowing for relatively small amounts ? Once that question is answered everything else will start to fall into place.

Thrugelmir

Graham1982 wrote: »

My current account also has an overdraft which was left over from my time as a student. This was about £1800 which I gradually reduced over ten years to £800 and have recently reduced it to £400. It is my intention to remove overdraft altogether by end of January.

Ten years to repay a £1,000. That's less than £10 a month. Your credit history tells potential lenders more about you and your attitutude to money than you may realise.

Rather than worrying about your credit score. Focus on paying less interest. That'll have a positive impact on your overall finances. You'll find that your money goes far further.

Graham1982

Hi everyone:

Thanks for your replies. In short:

Repaying overdraft was never something I saw as important in my twenties, I had a few low paying internships in 2007 - 2010 before securing a career. Effectively I finally paid bits off in large chunks and then didn't pay off in a consistent way.

I guess I have just got to the point where at 36 I realise I am not getting any younger and I need to sort this out.

I guess the main thing to be taken from this is:

Ignore credit score and focus on debt. In the short-term credit rating will be bad or will fluctuate, especially if I utilise my overdraft to its limit. However overdraft won't exist in a few weeks.

Thanks

Graham

System

Graham1982 wrote: »

Ignore credit score and focus on debt.

No, it is much more serious than this. You have no savings, you had to borrow money to buy a £300 washing machine which someone on £37k should be able to buy outright without any trouble. You're effectively in debt crisis and you need to look at your spending and where your money is going. You need to focus on that and the debt because without sorting out where you're wasting money you won't sort out the debt or if you do will end up back there the next time a slight hiccup occurs.

In the short-term credit rating will be bad or will fluctuate, especially if I utilise my overdraft to its limit.

No, if you use your overdraft at all as it is an indicator you're living beyond your means.

Nasqueron

Go on the debt free wannabe page and post a statement of affairs (SoA) to see where exactly your money is going, at 37k even allowing for rent/bills you should easily be putting aside hundreds of pounds a month and using credit wisely and having thousands in savings, that you don't indicates you are wasting your money on something meaningless

Lolly18

I’m sorry but no one here knows this guys situation, you can’t say he should be putting £100s a month away.

You do not know his situation, what he pays for, where he’s from, how much his rent is, childcare costs, nothing.

Just because he earns 36k does not mean he should have loads of savings

[Deleted User]

So at the age of 36, where’s circa £2400 per month going?
With no savings as well?

You must be able to afford £300 for a washing machine without looking to take a loan or finance or borrow from someone.

welly_59

Live in the real world Gary, I earn pretty much the same and I'm the same age. Rent for me is £600 plus childcare bill of £1300 a month. That leaves £500 for everything else, plus whatever his partner, if he has one, brings in. And as is well known, women earn less than men on average.

Factor in student loan repayments, council tax, utilities, transport, there's not much left!