Trying to re-build credit score after defaults, in preparation for new mortgage.

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!

Comments

  • Firstly, ignore your score and whatever "rating" is given to you by the CRAs.  It's irrelevant and bears no resemblance to how a lender will view you.
    What's important is the underlying data - and a relatively high number of defaults will inevitably count against you.  Having said that, their impact will diminish over time, especially if they're superseded by a solid history of good credit management.
    To that end, a credit card (used correctly, as you describe) will have a beneficial effect.  You may find you're restricted to the sub-prime "credit-builder" cards, but that in itself is not an issue.  That's probably about the best thing you can do right now, to start building up a favourable history.
    When the time comes to looking for a mortgage, it may be a good idea to engage a broker who specialises in adverse credit mortgages.  There are plenty of them around, and they will (at least should!) be able to look at your individual situation and offer the best advice.
    Hope this helps.
  • Firstly, ignore your score and whatever "rating" is given to you by the CRAs.  It's irrelevant and bears no resemblance to how a lender will view you.
    What's important is the underlying data - and a relatively high number of defaults will inevitably count against you.  Having said that, their impact will diminish over time, especially if they're superseded by a solid history of good credit management.
    To that end, a credit card (used correctly, as you describe) will have a beneficial effect.  You may find you're restricted to the sub-prime "credit-builder" cards, but that in itself is not an issue.  That's probably about the best thing you can do right now, to start building up a favourable history.
    When the time comes to looking for a mortgage, it may be a good idea to engage a broker who specialises in adverse credit mortgages.  There are plenty of them around, and they will (at least should!) be able to look at your individual situation and offer the best advice.
    Hope this helps.
    This is good advice, A mortgage broker (when the time comes) will suggest which lenders will likely lend with regards to your reports. In the meantime you could open a new cc account to build up more history but is unlikely to have a big impact in 12 months.
    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. 
  • If you earn 6 figures and are still living frugally then there is no reason you can't build up a substantial deposit which will go a long way to mitigating the past issues - certainly over the next couple of years of saving and good credit behaviour you would be much better placed to get a mortgage even with the defaults as the time from when the past credit performance was hit also matters at least to some
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