Credit rating boosting

squarehead94 · 13 Nov 2016 at 15:15

Hi all.
So currently I have a low credit rating of 355 from Equifax (this has however gone up from 280 12 months ago) I'm 22, work full time and have short term debts of £2000 (cars and there problems led to this) I'm in a comfortable position to pay them all off over the next 4 months while I'm living at home and will then be moving out shortly after that.

Just wondering though, I currently have £1800 left on my credit card to pay and a £500 overdraft. Because of the overdraft I am always in my overdraft every month, whereas I'm making stable payments to the CC monthly.

I'll be paying £500pm off my debts over the next few months, so which would be the best to pay off first? Basically is an overdraft worse for your credit rating than a credit card or is it the same? Just want to be boosting my score monthly so when I go for that first home I stand in a decent position of being accepted.

Thanks!

shifty_uk · 13 Nov 2016 at 15:22

Just pay as much as you can afford off your credit cards every month, the overdraft isnt as important, i dont think. Remember, actually taking credit and making regular payments(never missing any) should build up your score so having debt in the CC isnt necessarily a bad thing as long as you clear it off.

robfosters · 13 Nov 2016 at 15:23

If you already have the CC, then that would be better. Problem with overdrafts is they are wrapped up into bank accounts and show on the credit report as such. It isn't really a statement of a loan. Credit cards show that you can borrow responsibly more than overdrafts on credit reports.

Paying off an overdraft benefits your credit score no more than someone who maintains a basic account with no overdraft.

Swifty55 · 13 Nov 2016 at 15:25

Pay off your credit card as soon as possible.

Cancel your overdraft.

Spend responsibly.

squarehead94 · 13 Nov 2016 at 15:35

Swifty55 said:
Pay off your credit card as soon as possible.

Cancel your overdraft.

Spend responsibly.

I am now. I decided to book a holiday with my OH and we are getting our first place together once my debts are cleared and thereafter I'm planning on popping the question so about time I became a proper grown up.

That's why I wasn't sure if it was worth paying OD off first and cancelling it, or paying the CC off and keeping my overdraft for a few more months.

HangTime · 13 Nov 2016 at 15:40

squarehead94 said:
Because of the overdraft I am always in my overdraft every month

At the risk of sounding like a door handle, having an overdraft isn't a reason for being overdrawn every month, spending more money than you have is

Personally I would repay whatever has the highest interest rate first, regardless of impact on credit rating (assuming you make minimum payments, of course). That way you will clear the debt quicker.

muon · 13 Nov 2016 at 15:42

Being regularly overdrawn is very bad for your credit rating. It shows you are right at the limits of your finances and most definitely couldn't take on more debt.

Credit card debt is very common, especially on promotional rates and so doesn't adversely affect your credit worthiness as much. Although it might increase your profitability rating if you are paying a lot of interest. The latter isn't too important for a mortgage though as terms are fixed and they would much rather you pay on time. Note this all varies by company.

nick.lidgett · 13 Nov 2016 at 19:36

Store cards, catalogues and even paying your car insurance monthly also have a negative effect on your credit rating.

Getting out of your over draft and making regular payments on your CC is your best bet, having a balance on your CC is not necessarily a bad thing.

Arsonist · 13 Nov 2016 at 19:57

HangTime said:
At the risk of sounding like a door handle, having an overdraft isn't a reason for being overdrawn every month, spending more money than you have is

Personally I would repay whatever has the highest interest rate first, regardless of impact on credit rating (assuming you make minimum payments, of course). That way you will clear the debt quicker.

This basically.

I'm in a 'similar' position. Took out a 3k loan to buy a new car (old one died), I'm £1000 overdrawn (but on an interest free graduate account), but my credit card, which has a limit of £1600, is payed off in full every month. This firstly means I pay very little in interest on the CC, but also means my credit score is actually very good, so the 3k loan will actually only cost me £3220 over 3 years. £6.10 a month. Bargain. Plus my credit score continues to rise as my CC gets full payments each month and my loan gets the full monthly amount plus usually a bit extra to pay it off early.

Mr^B · 13 Nov 2016 at 20:15

Surely you pay NO interest if you clear your CC balance each month, rather than "very little"?

Probably a bit pedantic of me, but if you are being charged interest when you clear your balance each month, that's not usually the case - and I'd query your CC T&Cs - as usually if you clear your balance after each statement is produced you shouldn't be charged a penny.

hyperseven · 13 Nov 2016 at 20:30

Arsonist said:
This basically.

I'm in a 'similar' position. Took out a 3k loan to buy a new car (old one died), I'm £1000 overdrawn (but on an interest free graduate account), but my credit card, which has a limit of £1600, is payed off in full every month. This firstly means I pay very little in interest on the CC, but also means my credit score is actually very good, so the 3k loan will actually only cost me £3220 over 3 years. £6.10 a month. Bargain. Plus my credit score continues to rise as my CC gets full payments each month and my loan gets the full monthly amount plus usually a bit extra to pay it off early.

but its not just £6.10 a month

What about the 3K.

muon · 13 Nov 2016 at 20:43

I wouldn't call that very little interest.

Even if you paid all of the money on the loan at the end that is 7.3% (220/3000).

However, more likely you are paying evenly over 3 years. So double that and the interest you are paying is more like 14%+ (220/1500).

shifty_uk · 13 Nov 2016 at 23:14

Some strange things said in this thread...

Your overdraft isn't counted in your credit rating unless you go into an unauthorised overdraft or go to debt recovery...

Also, the comment about paying credit cards, store cards etc on a monthly basis having a negative affect on your score? lol wut. How do you think you build up a score in the first place?

Lenders assess how competent a borrower you are based on your historical and existing borrowings. Having multiple types of credit, mortgage, cards, car finance, monthly insurance, all builds up a positive record.

My score is good, I never have an issue borrowing and get offered plenty of opportunities based purely on the fact that I'm a 'good borrower' because I've had plenty and pay it off. With your logic, my car finance, car insurance, home insurance, pet insurance, mortgage, credit cards etc etc all tell the banks that I'm a complete liability...

muon · 13 Nov 2016 at 23:23

shifty_uk said:
Some strange things said in this thread...

Your overdraft isn't counted in your credit rating unless you go into an unauthorised overdraft or go to debt recovery...

Well that's wrong. Pull your own credit report from Experian if you want to see.

It is information available to lenders, it is borrowing like anything else. How they use it is up to them, but to say it isn't used is wrong.

itchy · 13 Nov 2016 at 23:52

Firstly overdraft is counted as credit that's a fact.

Second if make enough credit accounts but keep the available and what is used under 25% will boost your credit score ie.

£4000 credit only £1000 spent and all payments up to date over 12 months will boost your score.

Take out a loan, pay for 3 years, 6 months before end and providing all payments are up to date, another credit boost.

jaybee · 14 Nov 2016 at 00:09

I don't know what my score is but I have NEVER been refused a credit card, and I have probably had 20+ over the last decade. I credit card tart responsibly shifting debt. I'm always in debt, in that I always owe money.

NexusK · 14 Nov 2016 at 07:54

itchy said:
Second if make enough credit accounts but keep the available and what is used under 25% will boost your credit score ie.

£4000 credit only £1000 spent and all payments up to date over 12 months will boost your score.

That's myth. Your credit score will rise at the same rate whether you do that or are maxed out every month as long as payments are made on time and everything stays green, it's just an automated process that doesn't care one way or the other. Individual lenders however can and often will look at it and use those kinds of things when deciding whether to give you credit.

[TW]Fox · 14 Nov 2016 at 08:06

shifty_uk said:
Some strange things said in this thread...

You can say that again.

Your overdraft isn't counted in your credit rating

What do you think an overdraft is if it isn't credit?

You don't have an official 'credit rating' anyway - you have a credit file, which individual lenders can use to score you using their own criteria if they wish.

SixTwoSix · 14 Nov 2016 at 08:12

On some credit reports the overdraft usage isn't shown on your credit file, the limit is.

You'll simply get an "OK"/Green marker or the like if you're not over your available balance inclusive of your overdraft limit.

Rifte · 14 Nov 2016 at 08:17

Guys check your experience and equifax credit files. Your bank balance is not even remotely mentioned, also your overdraft facility ( if you have one) isn't mentioned as available credit. Only store cards, credit cards, loans, mortgages and credit agreements count. Your score is based upon the percentage of the available credit you have that you use.