Does anyone on here know much about credit ratings? - I'm a mess

[willowweep]

I'm coming up to my mid 20s and not very well versed on the subject.

I've been working PT most of the time since leaving college. I have now been FT for nearly 2 years. I've come from a not so great background and was never taught much about finances and organisation but I have been working hard to try and turn that around not always successfully.

Around 6 (ish) years ago my DF very generously decided to gift me a phone contract, it was all in my name but he was paying the direct debit. It was a 24month contract but for whatever reason my parents got it mixed up and thought it was 12 and ended up cancelling the direct debit after 12months, they subsequently either not opened or ignored all the ensuing letters and a couple of years ago it ended up being put down as a default on my credit file that I only found out about in the last few months so way too late to do anything about. Even if I paid it off (only about £160) it wouldn't change anything.

I was also in a horrible spot a couple of years ago and my stupid lack of organisation put me in arrears on a v small phone loan (100ish) which I have now paid off and a dispute with a very dodgy independent gym which ended in a collections company chasing me but I have paid that off in one hit now too. I'm not sure how that would affect my score.

So all above totals probably around £500-600 .

Apart from that my credit history is very limited, never had a credit card or anything like that.
I feel like a failure.

Me and DP would like to apply for a mortgage in a couple of years time but I'm terrified my financial history will hinder this.

Is there anything I can do to try and turn this around? Or am I doomed because I have a default on my credit file for the phone contract for another 3-4 years?

You cant change what has happened in the past.
But you can improve your rating between now and looking at a mortgage. Have a Google about what would be best, but the really easy stuff is to make sure you are on the electoral role at your current address, pay off everything on time.

If you think you can manage it successfully, get a credit card (maybe a credit builder one?) and make sure you pay it every month (set up a direct debit if you want).

A default comes off completely once it's been on there for 6 years. Again with the others, once the missed payments are 6+ years old they will not show on your credit file, however if the account is still active it will still show the payment history for the last 6 years. If you pay the default prior to it dropping off at the 6 year point then it should update to satisfied for the remainder of the years left.

You need to pay them off - bit that you haven't tbh.

Definitely pay it off.

We've just been approved a mortgage. We both have marks on our credit file, but after missing payments and one loan defaulting, we continued to make payments to clear the balances. We were just asked to explain the reason for the late payments and default.

We also each had small loans after this that we we didnt miss any payments on which I think helped to build back up the credit rating.

Neither of us have credit cards.

Pay anything off that you owe and then work on good financial health going forward. Money Saving Expert and their forums are brilliant for advice on building credit and good financial habits- I can't recommend them enough.

There are credit re-build cards that can help you to build your score by showing responsible repayment. It's also worth joining something like the MSE credit club so you get regular score updates and can catch issues before they snowball.

Get a credit card, and (this is the important bit) reliably pay at least the minimum on time, every single month.

I also had a pretty mediocre credit rating - like you, I'd never had a credit card, and when I was younger forgot to pay a gas bill for a while, which unbeknowst to me at the time, tanked my credit rating.

Last year I got a credit card with an introductory 0% APR. The credit limit I got was tiny, but I bought one big thing on it, and paid the minimum amount every month for a year and a bit (now upped it to more than the minimum to ensure the balance is paid off before the end of the 0% period), and now have an 'excellent' credit rating.

It's a weird one - surely not getting into debt would be a good thing! - but lenders basically want proof that if they lend you money, you will pay it back.

Oh, and also make sure you are signed up to agencies where you can keep an eye on your credit rating. Different agencies give you different ratings, and you never know which agency a particular lender will use.

Experian and Credit Karma (which tracks your TransUnion credit score) are good ones to sign up to. Mine is better with one than the other.

Credit Karma also shows you where you are doing well, and what areas are dragging you down - and how to improve in these areas.

Make the Moneysavingexpert website your friend. Read the weekly email and refer to it for any major financial decision. That way you'll learn 'being good with money' over time in easily digestible chunks.

There's a downloadable FTB guide for mortgages that covers getting your credit file in order as best you can and accessing help like lifetime ISAs.

What's done is done about the defaults but you probably need to settle these but there could be scope for reclaiming charges and complaining, depending on what exactly has happened. Take care with any further 'help' from your parents but maybe also encourage them to follow the moneysaving way.

Definitely get a credit card and use it for a small amount of your normal spending and set up a direct debit to pay the full balance off each month. Organise your finances so you never miss a payment or go into overdraft.

One thing that can help enormously is separating your bills account from your spending account. That way you don't have to think ahead about what money you have available to spend vs what is coming out for direct debits.

Also look for the Money Makeover section to run through all your finances and get the best price for your utilities etc. If you can cut your bills, that leaves more money to save or spend.

Thank you for the tips.

Just to clarify the £500-600 estimate is what I owed to the 3 different places. I've paid off the gym and the small phone loan in full. There's £160 left on the old phone contract I never knew about until recently.

I'm not relaying on my parents for anything. I moved out around 5 years ago and completely forgot about the phone contract as I wasn't paying for it, my DM apparently kept all the letters in my name to "one side" for me which included the ones chasing payment, but never gave them to me or mentioned them. But if you ask she would say she did tell me all about it.
I only found out recently as I registered onto one of the credit report websites.

I applied for a credit card and got rejected before I checked my credit score which I can imagine only made it worse?

I really need to step this up...