Default - better to pay off now or keep as I am

KR1988

Hi

I’m working to get myself in the best position to obtain a mortgage and move into my first home. I’ve worked hard to get my credit score improving but I wanted to know which scenario would make the most difference.

Backstory - I defaulted on my credit card in December 2017, since then I have been paying off the remaining balance monthly. As of now, the default is 3 years and 7 months old. Based on my current payments I will have paid in full by August 2022. The balance is £2021. 

Am I best to pay the remaining balance before August 2022 or continue as I am. I am aware the quicker it’s paid the better but as the default is on my file for 6 years, would it make a great deal of difference to my score and mortgage prospects in the long run if I pay in full or keep paying monthly?

Thanks   

Irishpearce26

Mortgage companies don't see your credit score, infact the credit score is useless. What they look at is your credit history, how much debt you have, any missed payments, defaults, CCJs etc.

Paying off the balance wont change the fact you defaulted, the 6 years will when it drops off. All that will do is reduce your debt which isn't a bad thing but the default will mean you will either struggle to be accepted or pay a high interest rate.

I would advise going through a broker to try and get you the best deal possible.

deannagone

1) A lot of what you are paying is interest, credit card interest rates are often high.  So you are throwing away that interest, its far far more than any interest you would get in savings or investments. 
2) If you are saving a deposit for a house, £2k isn't a huge sum.  

In your shoes, I would have put it as a priority to pay it off completely before I even started trying to save a deposit for a house.  But I wait to see if other's answers differ..

Tiglet2

I agree with deannagone.  Pay off your credit card and then at least when a potential lender does a hard search, it will show up as nothing outstanding.  £2k isn't a lot of money in the big scheme of things so don't let it be a barrier to obtaining a mortgage or loan.

KR1988

Thank you for the advice. 

The only debt I have is the credit card thankfully and the balance is a hell of a lot lower than it ever has been. 

My Dad is giving me my deposit which I am grateful for. I can only really look at affordable housing and the properties are being built in the next 1-2 years. Hopefully, this will give me enough time to put myself in the best position I can be. I will definitely look at a broker to see what I’m applicable for, if at all. 

I will look to get the balance either cleared or as low as possible before moving forward. 

Thrugelmir

An unsettled default tells a lender a great deal about a prospective applicants attitude towards money management. By clearing the debt you can then start rebuilding your history. 

deannagone

If you are being gifted the deposit, and having to reduce this CC balance so slowly, I would suggest looking at your budget, adjusting spending where possible and/or questioning whether you are ready to buy a property. Say you did, and the boiler goes out the day after you move in, or another major repair is needed - it sounds like you will be stuck.  Or interest rates could rise.

Give it time, do what you can to improve your earning potential and ability to save.., and when you feel more secure go for it. 

But with no savings, I'd wonder if its a good time to buy a property.

Cakeguts

If you can't clear the debt on the credit card then don't buy a property. The savings for the deposit are the practice at saving that you need to be able to save for repairs to your owned property.   It isn't always cheaper to own than rent because you immediately become responsible for paying for all repairs when you own.  You will also have a mortgage and you need savings to pay the mortgage if you lose your job.  At the moment you are not in a position to buy because you have a debt and no deposit.   Do some serious saving and see if you can save a deposit before you decide to buy.  You don't want to be repossessed because you haven't got enough savings to pay the mortgage if you are not working.