Mortgage application - Close CC?

8871Jlw

Hello there, I am looking to do a joint mortgage application with my wife, but my credit rating on Experian is in the poor bracket.  Ideally looking to boost to fair/good in the coming months.

As such, In terms of a mortgage application, is it better to pay off and close my only outstanding credit card OR pay off in full and leave open?  I've read conflicting things.  If I pay off and close, I would have no outstanding credit accounts at all, which I read isn't the best?!  Any advice would be appreciated, thank you 

[Deleted User]

Keep it and use it, clearing in full each month.

Clearing the debt will lower your score but that's not important, as it's not used in lending.

cii4ps

I got a CC purely because I heard it’s what you do to raise your credit rating. However, looking at Experian, I realised it punished me each time I used it. 

I’ve raised my credit rating on experian by 150+ p/m just by not using my cc and leaving it at 0.

I recommend using creditkarma.co.uk , it updates every week and shows you in much more details what you need to work on. 

MovingForwards

Ignore the credit score and rating as it's not seen or used by any UK financial institution, it's the credit history they see eg late, missed payments, defaults, CCJs, IVA, bankruptcy etc.

Using the credit card and paying it off in full, after the statement has been produced, demonstrates you can be responsible with credit.

[Deleted User]

cii4ps said:

I got a CC purely because I heard it’s what you do to raise your credit rating. However, looking at Experian, I realised it punished me each time I used it. 

I’ve raised my credit rating on experian by 150+ p/m just by not using my cc and leaving it at 0.

You've missed a big opportunity to impress lenders and improve your real credit ratings with them.

Use it and clear in full each month. Experian won't give you a mortgage, but lenders will.

MaryNB

Keep your utilisation low. If you're using like 90% of your limit each month it shows poor financial management. I've read that you should keep your limit to 20%/30%/60% so obviously different schools of thought. I keep mine below 20%.
Make sure at the very least you have a direct debit set up to pay the minimum balance, if not the full amount. I make sure the minimum on my card will go by direct debit and the just pay the full balance off manually each month.

[Deleted User]

As long as you're clearing in full, utilisation isn't a concern.

dunstonh

As such, In terms of a mortgage application, is it better to pay off and close my only outstanding credit card OR pay off in full and leave open? 

If you clear the CC each month then its good for your overall status.

I got a CC purely because I heard it’s what you do to raise your credit rating. However, looking at Experian, I realised it punished me each time I used it. 

You shouldn't do.    under 25% utlisation of the credit limit is considered a positive.  Under 50% neutral.  Over 50% a minor negative.  Over 75% a major negative.   That is a broad interpretation as it varies.

tim_london

Go for a full statutory (i.e. free) report with someone like Equifax, you will not get a score like Experian but you will see the raw data that a mortgage underwriter will use to check your history.  TBH for mortgages both are important, computer generated score is used for the DIP process which you need to do before making an offer.  Then when you apply for the mortgage afterwards it will be a human assessment.  The human assessment will take into account what your monthly income are and what you are actually spending on, which the computer system does not care.

Financial report dates back to 6 years of all your accounts.  So if you have had lots of defaults and late payment it will be hard to get back to 'excellent' range until it passes away the cut off.  In reality it means you might find it hard to get the lowest rate mortgages with big banks but you'd still be ok if you keep a year or two clean.

Credit report will show the following which may indicate a red flag:

• High number of late payment (occasional is ok, I've missed a payment here and there but still have 999 Experian score)
• 'Query' - i.e. pressing the would you like to 'increase limit' button on you online credit card account or if you phoned in.  This indicates you are running out of cash for that month.  Again only an issue if you do it too often.
• Defaults - very bad
• High debt utilisation - this is different for every computer scoring system.  In general don't max out over 80% of a credit card and remember to pay it in full.  
• Spreading borrowing across cards seems to be ok.  Remember computer system doesn't know how much you earn, so even if you owe £500k on credit cards as long as they're all nowhere near your credit limit and you are paying it off then it is ok.  Obviously when it gets to human assessment then this is no go.

Other point people tend not to talk about:

• Credit report highlights 'promotional credit'.  i.e. If you do owe money then consolidating the debt indicates you are money smart.  i.e. having a balance transfer credit card and consolidating all your debt to it and making sure you are paying off the minimum balance is better than struggling to keep up on a high interest credit card.  Banks will take note of this.
• Loans (car or unsecured) - similar.

Other essentials in the credit report:

•  Electoral Register - doesn't matter if you 'think' you've registered to vote.  Please get a free credit report and make sure you are flagged properly in it.
• Court information - CCJ, Bankruptcy, IVA.  Hopefully you have none
• Notice of correction - important.  Sometimes late payment might not be your fault.  For example years ago my Virgin Media account raised the monthly price but forgot to amend my direct debit and flagged 4 months of late payment on my account.  You can demand Virgin (or whoever) to submit an explanation to the credit report to say it is not my fault.
• Searches - hard search (mortgage application, actual loans), and soft searches (online eligibility).  Soft searches are generally ok, don't go overboard.  
• Gone away records - important please check.  This can be very bad if they flag something here because it will interpreted as you tried to avoid debt by moving house.  In reality it could be a mistake on your debtor side.