Credit rating and debt repayment

missbee79

Hi, I have managed to clear my spiralling credit card debt with the help of a friend. I intend to improve my credit rating and arrange a fixed term personal loan to repay her as soon as possible. My question is, do I close my credit cards down - or keep them open without using any credit  - to build up my score quicker. 

MattMattMattUK

missbee79 said:

Hi, I have managed to clear my spiralling credit card debt with the help of a friend. I intend to improve my credit rating and arrange a fixed term personal loan to repay her as soon as possible. My question is, do I close my credit cards down - or keep them open without using any credit  - to build up my score quicker. 

Your credit score/rating is a made up and meaningless number created to try and allow the CRAs to sell you more financial products, ignore it. Keep at least one card, use it for your expenditure and pay it in full every month.

How much do you earn and how much are you looking to borrow?

missbee79

Thanks. I earn around £35k and hope to arrange 8k personal loan ASAP to repay my friend. I still have a barclaycard with around £1500 balance  -this is 0% until May 2024. I expect to owe £500 if i maintain the payments i am currently paying. (I cant afford to increase at the moment) The cards I have paid off are Aqua - 50% APR (I would really like to close this down). Tesco and Capital one.  Ideally I would like to cancel these cards but need to improve my score ASAP but wasn't sure if not utilising my available credit would increase my score.

MattMattMattUK

missbee79 said:

Thanks. I earn around £35k and hope to arrange 8k personal loan ASAP to repay my friend. I still have a barclaycard with around £1500 balance  -this is 0% until May 2024. I expect to owe £500 if i maintain the payments i am currently paying. (I cant afford to increase at the moment) The cards I have paid off are Aqua - 50% APR (I would really like to close this down). Tesco and Capital one.  Ideally I would like to cancel these cards but need to improve my score ASAP but wasn't sure if not utilising my available credit would increase my score.

Your score is meaningless, no lender ever sees it, it is a marketing gimmick, ignore it entirely!

The next question becomes can you afford a loan? You say you cannot afford to increase payments to the card balance outstanding, which would indicate that you will likely fail the affordability part of any application for a loan. If you cannot afford to pay more on the card then how do you plan on finding £200+ a month for the loan?

By the sound of it your friend has given you a lifeline here, I understand the desire to repay them quickly, but also recognise that if they were willing to do this then they will also want to see you get yourself straight financially, that means getting yourself on a solid financial footing so that you can repay them both the money they lent you, but also the love they obviously have for you by giving you the opportunity to get things sorted financially.

It may be worth you positing an SOA to see where you can cut back and focus on minimising your expenditure.

https://www.lemonfool.co.uk/financecalculators/soa.php

Richard1212

You might ask your benefactor if she needs the money repaid in "one go" asap ( which somewhat negates her gift/loan if you are put into loan debt in order to pay her asap) or whether you could repay her, interest free, at an agreed sum over an agreed period.

It seems wrong to go from credit card debts to loan debt when your friend obviously wants to help you out of debt.

MattMattMattUK

Richard1212 said:

You might ask your benefactor if she needs the money repaid in "one go" asap ( which somewhat negates her gift/loan if you are put into loan debt in order to pay her asap) or whether you could repay her, interest free, at an agreed sum over an agreed period.

It seems wrong to go from credit card debts to loan debt when your friend obviously wants to help you out of debt.

The main difference with that would be that a personal loan could easily be around 6-6.5% interest, where as a credit card could be upwards of 30%, some as high as 49.9% APR which makes a huge difference. As an example to clear £8,000 over five years at 6.5% requires monthly payments of £157 pm, on a credit card with 49.9% APR it would mean monthly payments of £364 pm. That means that on a loan the cost of the interest is £1,420, on a credit card the interest would cost £13,840.

Richard1212

MattMattMattUK said:

Richard1212 said:

You might ask your benefactor if she needs the money repaid in "one go" asap ( which somewhat negates her gift/loan if you are put into loan debt in order to pay her asap) or whether you could repay her, interest free, at an agreed sum over an agreed period.

It seems wrong to go from credit card debts to loan debt when your friend obviously wants to help you out of debt.

The main difference with that would be that a personal loan could easily be around 6-6.5% interest, where as a credit card could be upwards of 30%, some as high as 49.9% APR which makes a huge difference. As an example to clear £8,000 over five years at 6.5% requires monthly payments of £157 pm, on a credit card with 49.9% APR it would mean monthly payments of £364 pm. That means that on a loan the cost of the interest is £1,420, on a credit card the interest would cost £13,840.

But you miss the point raised. A loan is of course the only way to go. But with no or less interest, over a period which may be better than an institutional loan, would be a real saviour------and as the benefactor obviously wants to make life easier for the O/P, there may be that she would be amenable to my suggestion or someway towards it.

That would make it far better than your sort of loan , especially as my proposal goes to the core of the loan which ALREADY exists.

prettyandfluffy

Addressing only your question about credit cards: Get rid of the Aqua credit card.  Assuming the interest rates on the other 2 cards are reasonable I would keep them and alternately use each once a month to pay for something you need eg food or fuel, set up direct debits to pay them in full every month.  That will maintain a good credit profile.
It's concerning that you can't pay off the Barclaycard debt more quickly though.  Why is this?

[Deleted User]

MattMattMattUK said:

missbee79 said:

Thanks. I earn around £35k and hope to arrange 8k personal loan ASAP to repay my friend. I still have a barclaycard with around £1500 balance  -this is 0% until May 2024. I expect to owe £500 if i maintain the payments i am currently paying. (I cant afford to increase at the moment) The cards I have paid off are Aqua - 50% APR (I would really like to close this down). Tesco and Capital one.  Ideally I would like to cancel these cards but need to improve my score ASAP but wasn't sure if not utilising my available credit would increase my score.

Your score is meaningless, no lender ever sees it, it is a marketing gimmick, ignore it entirely!

The next question becomes can you afford a loan? You say you cannot afford to increase payments to the card balance outstanding, which would indicate that you will likely fail the affordability part of any application for a loan. If you cannot afford to pay more on the card then how do you plan on finding £200+ a month for the loan?

By the sound of it your friend has given you a lifeline here, I understand the desire to repay them quickly, but also recognise that if they were willing to do this then they will also want to see you get yourself straight financially, that means getting yourself on a solid financial footing so that you can repay them both the money they lent you, but also the love they obviously have for you by giving you the opportunity to get things sorted financially.

It may be worth you positing an SOA to see where you can cut back and focus on minimising your expenditure.

https://www.lemonfool.co.uk/financecalculators/soa.php

That's not entirely true about lenders never seeing the scores.

I worked for a motor finance company and was the Head of the Underwriting department, we saw the score of one of the credit reference agencies every finance application we looked at.

If the score was of a certain level, we knew the customer was near as dammit perfect so we'd lend on that basis as well as looking through the whole credit application of course. The score indicated to us the Underwriting team that the customer was good for a lend or not, this being done at speed, say 2 or 3 minutes to make a decision on lending upto 20k.

CliveOfIndia

matt1976 said:

MattMattMattUK said:

missbee79 said:

Thanks. I earn around £35k and hope to arrange 8k personal loan ASAP to repay my friend. I still have a barclaycard with around £1500 balance  -this is 0% until May 2024. I expect to owe £500 if i maintain the payments i am currently paying. (I cant afford to increase at the moment) The cards I have paid off are Aqua - 50% APR (I would really like to close this down). Tesco and Capital one.  Ideally I would like to cancel these cards but need to improve my score ASAP but wasn't sure if not utilising my available credit would increase my score.

Your score is meaningless, no lender ever sees it, it is a marketing gimmick, ignore it entirely!

The next question becomes can you afford a loan? You say you cannot afford to increase payments to the card balance outstanding, which would indicate that you will likely fail the affordability part of any application for a loan. If you cannot afford to pay more on the card then how do you plan on finding £200+ a month for the loan?

By the sound of it your friend has given you a lifeline here, I understand the desire to repay them quickly, but also recognise that if they were willing to do this then they will also want to see you get yourself straight financially, that means getting yourself on a solid financial footing so that you can repay them both the money they lent you, but also the love they obviously have for you by giving you the opportunity to get things sorted financially.

It may be worth you positing an SOA to see where you can cut back and focus on minimising your expenditure.

https://www.lemonfool.co.uk/financecalculators/soa.php

That's not entirely true about lenders never seeing the scores.

I worked for a motor finance company and was the Head of the Underwriting department, we saw the score of one of the credit reference agencies every finance application we looked at.

If the score was of a certain level, we knew the customer was near as dammit perfect so we'd lend on that basis as well as looking through the whole credit application of course. The score indicated to us the Underwriting team that the customer was good for a lend or not, this being done at speed, say 2 or 3 minutes to make a decision on lending upto 20k.

Are you certain that it was the CRA score you were looking at - or was it the internal score generated by your company's systems?

Having said that, how long ago was this?  There are precious few lenders these days who would manually assess a run-of-the-mill credit application, it's all automated.  Yes, there will be exceptions for particularly high-value or unusual applications, but in the vast majority of cases it's a case of "computer says yes/no" - and this takes a matter of seconds, not minutes.

[Deleted User]

CliveOfIndia said:

matt1976 said:

MattMattMattUK said:

missbee79 said:

Thanks. I earn around £35k and hope to arrange 8k personal loan ASAP to repay my friend. I still have a barclaycard with around £1500 balance  -this is 0% until May 2024. I expect to owe £500 if i maintain the payments i am currently paying. (I cant afford to increase at the moment) The cards I have paid off are Aqua - 50% APR (I would really like to close this down). Tesco and Capital one.  Ideally I would like to cancel these cards but need to improve my score ASAP but wasn't sure if not utilising my available credit would increase my score.

Your score is meaningless, no lender ever sees it, it is a marketing gimmick, ignore it entirely!

The next question becomes can you afford a loan? You say you cannot afford to increase payments to the card balance outstanding, which would indicate that you will likely fail the affordability part of any application for a loan. If you cannot afford to pay more on the card then how do you plan on finding £200+ a month for the loan?

By the sound of it your friend has given you a lifeline here, I understand the desire to repay them quickly, but also recognise that if they were willing to do this then they will also want to see you get yourself straight financially, that means getting yourself on a solid financial footing so that you can repay them both the money they lent you, but also the love they obviously have for you by giving you the opportunity to get things sorted financially.

It may be worth you positing an SOA to see where you can cut back and focus on minimising your expenditure.

https://www.lemonfool.co.uk/financecalculators/soa.php

That's not entirely true about lenders never seeing the scores.

I worked for a motor finance company and was the Head of the Underwriting department, we saw the score of one of the credit reference agencies every finance application we looked at.

If the score was of a certain level, we knew the customer was near as dammit perfect so we'd lend on that basis as well as looking through the whole credit application of course. The score indicated to us the Underwriting team that the customer was good for a lend or not, this being done at speed, say 2 or 3 minutes to make a decision on lending upto 20k.

Are you certain that it was the CRA score you were looking at - or was it the internal score generated by your company's systems?

Having said that, how long ago was this?  There are precious few lenders these days who would manually assess a run-of-the-mill credit application, it's all automated.  Yes, there will be exceptions for particularly high-value or unusual applications, but in the vast majority of cases it's a case of "computer says yes/no" - and this takes a matter of seconds, not minutes.

Specialist lenders have automation in place but a specialist lender cannot just have automation as people who require the services of specialist lenders would be turned down outright if relying on lenders with just automation. There are lots of grey areas.

This was fairly recently, we had our internal score and the score of the credit reference agency to compare against. Both were used as a tool, never have too much data.

Many of our customers had previous credit problems, lack of credit, specialist lend, CCJ's, Defaults, lack of search history, oddball cars, taxi drivers. All these may be declined with your straight forward automation, that's where manually looking at each application comes into it.