Pay Credit Cards Early?

[Deleted User]

loalife222 wrote: »

Ok, if an excellent score gives you access to the best rates and offers available, for example, how can it be meaningless?
It doesn't - there's no such thing as an "excellent score" - only in the eyes of those suckered into the CRA's marketing gimmicks to sell you "improvement" products

Or is it something else that dictates exactly what rates you are likely to receive?
Yes there is - as per my post above. Your credit HISTORY. Not SCORE

I understand that affordability plays a large part, as well as your payment history, and any black marks on your report.

But would it not be fair to say that an excellent score encompasses all these individual factors, and is representative of all the aforementioned being in good order?
Not at all. Bankrupts get a 999 score - how does that show good money management?

For example, if you have;
• A clean history
• All payments are up to date
• You have no outstanding debt
• No CCJ's
• Are using a low percentage of your overall utilisation
• Have an excellent affordability rating

..would this not automatically (over time) exhibit an excellent credit score?
Maybe. Maybe not. But either way it's still meaningless. If a lender declines you and you go back to them and say "Please sir - I have a 999 score on Experian" - they will tell you where to go

I suggest you read the sticky at the top of this forum, and there is even an MSE article that clearly states "Lenders DO NOT see the CRA score".

loalife222

I'm just curious what would need to be done in order to make oneself 'perfect' (or as close as one could ever hope to be) in the eyes of both the CRA's and Lenders?

It must be possible to have a perfect score across all CRA's, and be accepted for virtually everything and anything (with the very best rates) within your spending capabilities..assuming you have no current debt or loans, and all the above are in good order.

I'm just wondering how people achieve this. Or is it simply a case of keeping everything as mentioned, and the simple passage of time?

Or is there a formula to maximise the effectiveness of your appeal to said parties? For example, having 5 credit cards with a total credit limit of £40k, but only using 2% of your total utilisation each month?

PRAISETHESUN

-insert obligatory line about how the scores are meaningless, etc-

In my view, it is best to wait until a statement has been generated and then pay it off in full precisely for the reason you've described that is obfuscates your credit utilisation if you pay it off early. I don't think it really matters at the end of the day as the information is reported in the details of your reports - either as a statement balance that has been generated, or in an amount repaid to the lender - both situations indicate that you have been using credit and managing it responsibly. Paying off the balance IN FULL manually or by direct debit doesn't really matter either - I personally recommend DD however as if anything goes wrong in the transfer then you are covered by the DD guarantee and it is up to your credit card provider/bank to sort it out and remove late payment markers, etc.

PRAISETHESUN

loalife222 wrote: »

It must be possible to have a perfect score across all CRA's, and be accepted for virtually everything and anything (with the very best rates) within your spending capabilities..assuming you have no current debt or loans, and all the above are in good order.

I'm just wondering how people achieve this. Or is it simply a case of keeping everything as mentioned, and the simple passage of time?

That's the thing though - even with perfect "scores" you will not be accepted every time by every lender. As everyone will eventually mention, the scores are generated by the CRAs for your eyes only and have no correlation with how likely you are to be accepted for credit. What matters most is your credit history. There isn't really a magic formula so to speak as everyone's situation is different, but basically you want to demonstrate that you can manage credit responsibly, live within your means and pay your debts on time.

[Deleted User]

OP you need to choose between impressing lenders, or impressing the CRAs. They're not the same thing.

Decide if you want an Experian mortgage, or one from a bank/ building society.

loalife222

Basically, I'm trying to understand how the system works in detail, and how to maximise one's effectiveness within that system.

I guess it depends on what you want to use it for.

My personal example would be;

I would like to apply for a first-time mortgage at some point in the not too distant future. Leaving my partner out of the equation for now, how would I best set myself up for the most desirable rates and maximum approval chances? How can I position myself to appear most appealing in the eyes of lenders?

• My annual gross income is £30,000 basic
• My credit history now looks good
• I have no outstanding debts or loans
• I have two credit cards to help build my file/history further through responsible purchasing/repayments;
- Card 1 I've owned for almost two years now, and I understand it is beneficial to hang on to this one as it can be viewed as positive to have some 'long-term financial relationships'. This card has a £2600 limit
- Card 2 I've owned for only a month. This one has a £3000 limit
- I divide my monthly spending evenly between the two, and settle in full by DD each month
- My cumulative monthly spending between the two is around £1000 approximately

So my total credit available currently stands at £5600. Therefore my approximate monthly utilisation is 17.86%.

Now, assuming my monthly spending will remain at approximately £1000, which scenario looks better to mortgage lenders, for example;

a) I have two cards with a total of £5600 available credit, utilise 17.86% of that total each month, and pay my balances in full every month on time

b) I have five cards with a total of £26,000 available credit, only utilise 3.85% of that total each month, and pay my balances in full every month on time

c) I have one card with a total of £2600 available credit, utilise 38.46% of that total each month, and pay my balance in full every month on time

Or does it make no difference?

[Deleted User]

Have at least a couple cards (preferably more) - you need a back up. Use regularly and clear in full each month. You don't need to use all of them all the time.

The amount you spend doesn't matter, as long as it's below your credit limit, if you're clearing in full.

You have low limits, so accept any increases offered.

20aday

In the past I used to pay off any spending on my credit cards once the transaction(s) had been posted to my account; I thought it was helping my, what I now know to be meaningless 'score', but it wasn't until I came across a post here on MSE that I realised I wasn't.

Started to settle my balances in full once the statement(s) had been generated and before the due date and then my respective lenders offered me credit limit increases as/when.

loalife222

Thanks for that zx81.

My next question is;

If you want to apply for a £300k mortgage, how does your current total available credit count towards/against this? ��

For example, I currently have £5.6k total credit available. If I managed over the next few years to increase that availablity to £50k (totally random figure), by obtaining several more cards/increasing limits etc, would lenders feel inclined to lend me £50k less than they otherwise might, or would it make no difference? Or might they even feel inclined to lend me more? Or would they delve further into my utilisation of said £50k to see how responsible I am with that?

Or does it simply come down to a matter of overall affordability based on cumulative income when mortgage lending is concerned?

Could it be that one's total availability only plays a supporting part in determining what kind of rate you are likely to secure?

Or not?

If none of the above, when is a high total availability likely to be useful in the eyes of lenders, and for what reason?

[Deleted User]

Limits are rarely a significant issue for mortgages, especially if mostly unused. Higher risk lenders may be concerned you'll spend it all, but generally, don't worry.

It's more of a factor for credit card lending.

Your limits are very low, so don't be afraid to have them increased. You want lenders to think that others trust you.