Trying to re-build credit score after defaults, in preparation for new mortgage.
7NX
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Background:
Around 5 years ago, my wife and I got ourselves into a spiral of debt (around £35,000). We weren't money-wise at all, and would simply take out a new credit card whenever the previous one was maxed out. We'd tell ourselves this was just "to transfer the balance at 0%..." or was just to 'tide us over' until after Christmas etc. - The usual.
Long story short, we realized we were in trouble, and with the money we were earning at the time (£34,000 + £16,000), we were only ever paying off the interest, and saw that there was no realistic chance we'd ever be able to pay these off without some help. (How lenders were still happy to offer us credit, I'll never know!). We approached StepChange who were fantastic and had DMPs set up with each creditor, which was a huge relief but meant that all of our accounts went into default. (6 accounts in total).
Then the pandemic hit in 2020, and I was made redundant from my office job shortly after. We used some of my redundancy money to clear two of our debts with 'reduced/partial settlement offers' and also took a 6-month mortgage holiday (which we needed to extend by another three months, which meant another defaulted account). Our mortgage provided did, however, consolidate our arrears back into our mortgage, and our payments have all been up-to-date on our mortgage since - so this is not an active debt, but has been marked on our credit files as another default.
After being made redundant, I decided to follow my dream and pursue a career in acting full-time, which although was a huge risk, has been the best decision I've ever made. My income has been six figures for the past two years, and we're now financially very stable and have cleared all of our debts
The problem:
We're hoping to be able to buy a new house potentially in the next 12 months, and although we're financially very stable now, our credit ratings are in a pretty poor state. After paying off all of our debts, both of our credit scores have now moved from *Poor* to *Fair* on Experian (around 775), however we have 6 defaults listed on our file (the last of which was just under three years ago), which is clearly severely impacting our scores, and I imagine, will do for another three years until they drop off.
The Question:
There are many credit cards out there designed to help repair/build back a poor credit score. Would it be beneficial to take one of these, to start building up some 'good' credit use/history, after our shoddy past? Or would this be seen as a negative factor by lenders? There would be absolutely zero dependence on these cards as we are now completely financially stable, so it would be a case of simply doing the monthly food shop using it, and paying it off in full each month.
Advice, thoughts and guidance greatly appreciated!
Around 5 years ago, my wife and I got ourselves into a spiral of debt (around £35,000). We weren't money-wise at all, and would simply take out a new credit card whenever the previous one was maxed out. We'd tell ourselves this was just "to transfer the balance at 0%..." or was just to 'tide us over' until after Christmas etc. - The usual.
Long story short, we realized we were in trouble, and with the money we were earning at the time (£34,000 + £16,000), we were only ever paying off the interest, and saw that there was no realistic chance we'd ever be able to pay these off without some help. (How lenders were still happy to offer us credit, I'll never know!). We approached StepChange who were fantastic and had DMPs set up with each creditor, which was a huge relief but meant that all of our accounts went into default. (6 accounts in total).
Then the pandemic hit in 2020, and I was made redundant from my office job shortly after. We used some of my redundancy money to clear two of our debts with 'reduced/partial settlement offers' and also took a 6-month mortgage holiday (which we needed to extend by another three months, which meant another defaulted account). Our mortgage provided did, however, consolidate our arrears back into our mortgage, and our payments have all been up-to-date on our mortgage since - so this is not an active debt, but has been marked on our credit files as another default.
After being made redundant, I decided to follow my dream and pursue a career in acting full-time, which although was a huge risk, has been the best decision I've ever made. My income has been six figures for the past two years, and we're now financially very stable and have cleared all of our debts
The problem:
We're hoping to be able to buy a new house potentially in the next 12 months, and although we're financially very stable now, our credit ratings are in a pretty poor state. After paying off all of our debts, both of our credit scores have now moved from *Poor* to *Fair* on Experian (around 775), however we have 6 defaults listed on our file (the last of which was just under three years ago), which is clearly severely impacting our scores, and I imagine, will do for another three years until they drop off.
The Question:
There are many credit cards out there designed to help repair/build back a poor credit score. Would it be beneficial to take one of these, to start building up some 'good' credit use/history, after our shoddy past? Or would this be seen as a negative factor by lenders? There would be absolutely zero dependence on these cards as we are now completely financially stable, so it would be a case of simply doing the monthly food shop using it, and paying it off in full each month.
Advice, thoughts and guidance greatly appreciated!
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Replies
Manage what you have now prudently, stay well away from credit utilisation of 30% or your total limits, that sort of thing. Lenders will look at how you manage your current finances at time of application (predominately) as they know people go through difficult patches. How you've managed your finances since is what matters.
You obviously won't get prime interest rates so prepare yourself for that.