pre mortgage period help please

[floridadreaming]

Sorry if this is long but I'm trying to get my head round our change of circs.

Basically VERY bad time in our lives over 4 years left us with nearly 40k of debt. Since Xmas, things have massively gone on the up and we've paid off 9k. We are about to receive inheritance which will wipe all the debt and give us a pot of 30k for a deposit on a house.

All our debt is on credit cards / overdrafts etc. no CCJs or late payments. All debts have been serviced since they were accrued etc.

We have 4 credit cards, 3 overdrafts, 2 store accounts between dh and I. Some are clear already and the rest will be when the money comes next week. For the purpose of mortgage applications....should we:

1. Shut everything down completely
2. Close some and keep some others open
3. Keep everything open but massively lower the credit limits
4. Keep everything as it is with no debt on them

We are planning a 3 month financial diet through the autumn to ensure good clean bank accounts with a view to applying for a mortgage in the new year. Our credit scores are fine but is that enough time for the debt to be wiped and our credit scores to reflect the lack of debt at last? Or does our picture just look awful anyway because of our long term history?

Any help gratefully received. I'm not sure what to do for the best here!

If you are not planning on applying for the mortgage until the new year, your past high debt level probably won't have much of an effect, especially as you have kept up with all repayments.

Your plan to go on a 'financial diet' is a good one. Also make sure you have a good idea of what you spend, incomings and outgoings etc for the application. If your financial diet means you will be spending less on eating out and other discretionary purchases, plus not having any more debt repayments, should mean that your savings will increase by a few thousand over the next few months.

I would cancel the store cards, these serve no purpose really unless you can get good discounts and pay them off every month to save interest - just pay using your current account or credit card.

I would keep an overdraft facility on your main bills account, but not use it. Forget it is there, but it will mean that any unexpected payments don't bounce, saving bank charges, problems with unpaid bills and black marks. Cancel the other two over drafts.

Keep one credit card each and perhaps a spare by the highest earner.
Cancel the rest.

Set the limits at a 'medium' amount (say £2-5k) depending on your income - unless you have a decent amount in savings, it's always useful to have a decent credit limit somewhere to use in an emergency - vets bills, new car etc. You sound financially responsible and got into debt through bad circumstances not overspending and credit limits seen as free money burning a hole in your pocket.

Use them for a couple of hundred pounds each on both cards each month (maybe pay for fuel and/or groceries) and set up a direct debit to pay off in full every month then you have a good mark on your credit file that shows you can handle credit properly.

Do all that and I'm sure you'll be fine.

Thank you - that's it really really helpful. Great advice and I will act on it as what you said is my gut instinct!

When you apply for a mortgage, do they ask to see all bank accounts or just the main ones?

y daughter recently had to supply last 3 months of bank statements. I think they just want your main account where your salary goes in.

Keep a couple of credit cards open, spend between £100 and the amount you expect your monthly mortgage payment to be (keeping within your income) on these cards each month and then pay the balance off in full immediate each month. Having no credit at all gives you a poor credit rating evidence that you can incur debt and then pay it off quickly from income improves the rating.

Will do about using the credit cards. We haven't used them in a year bar paying them off so it'll be weird using them again. Will using them for 3-4 months be enough?