Mortgage with partner - uneven credit scores - HELP!

[EbayIsKing]

Hi guys,

Lots of baffling (and contradicting) info online so looking for a bit of real world advice from you lovely lot please.

I currently have about £6k credit card debt and owe another £9k to a family member. I realise this is a lot, and it’s due to a pretty terrible situation which is luckily now resolved and I’m thankfully in a much better place financially now. However, this whole situation has taken a bite from my credit history and I currently have poor credit. I am paying the credit cards off at £600 p/ month and the family member back at £300 p/ month (increasing by £100 at the end of each year as per a payment plan) so should have cleared the credit cards by March next year and the family member in a few years.

The problem is, I am looking at finally buying a house with my lovely partner at the end of the year. He has an excellent credit score, and I suppose I’m worried about mine ‘dragging us down’ and affecting either the mortgage amount we can get, or the interest. Is this likely? We will have a pretty big deposit and I would hope that my credit score will have gone up by then but obviously they will see all my outgoings (including £900 on debt p/month) and know that I have this debt. I’m also aware that multiple applications will also affect my score, so would we be best to wait until say the middle of next year when I have cleared all of my CC debt, and my score is better? Will a negative credit history affect a mortgage amount or interest, even if my partner has a great score?

As you can probably tell I’m not very financially savvy (I am working on it though ) so all advice is very very welcome!

The debt to the family member won't be reflected on your credit score. As far as the financial system I'd concerned that is just you choosing to spend £300 per month on something that they don't get involved in.

Those debts are not actually that big compared to what a lot of people manage. You sound like you are managing fine.

Credit score is not damaged by having debt. Having a debt and managing it well - ie sticking to a repayment schedule - improves your score. Someone with no debt will have a worse credit score than someone with £15k debt who always makes repayments on time.

So it is important to ensure that your repayment schedule is affordable and that you are on the best interest rate you can get but do not stress about having the debt.

The effect of the debt on your mortgage borrowing will be fairly minimal. They will calculate the amount they lend based on combined salaries but deduct from your salary the minimum payment amount from your credit card debt (2.5% ie £150 pm at the moment).

Is the debt to the family member "official" with legally binding contracts, or is it informal and voluntary? If the latter then I am not sure you technically even need to declare it.

Yimmini, thank you so much for your kind words - really this stuff should be taught in schools so dingbats like me don’t have to work it out by trial and (lots of) error...!

So I am aware that the family member debt won’t be reflected on my credit score, however as I pay back a fixed monthly amount I assume credit lenders will look at that, and ask what’s it’s for when assessing our bank records? I will then have to tell them what, why and how much, will I not? I may be wrong, I have never applied for a mortgage before and am not in a position to ask anyone IRL who has!

Ah thank you, that’s very reassuring - even though you know it’s not true you always feel like everyone else is swimming in money and you’re drowning, don’t you!!

I’m trying to work out WHY mine is so low - I have checked it with Expedia etc and there is nothing at all on here that shouldn’t be. I made quite a few applications in a row and got rejected for a few of them, but this was about 2 years ago now. I was using a large % of the credit as well, and I’m currently renting which apparently counts against me, but I’m on the electoral register so the only other thing I think that can make it so low is the amount of debt.

I just changed to a 0% balance transfer card, so that’s pretty good, and will change again when the offer is up if I haven’t paid everything off.

That’s so, so reassuring to hear. I made mistakes when I was a bit desperate and fairly ignorant but am fully committed to living within my means now, so hopefully bank statements etc will reflect that - do you know what factor mortgage company’s DO consider? You hear horror stories about them asking what you bought from ASOS etc...!

The debt to the family member isn’t official, no, but will I look dodgy if I don’t initially declare it, then it comes out when they look at my bank statements? After CC debts and rent obviously it’s my biggest outgoing so may raise a few flags?

I'm not recommending that you lie, but your bank statement could look exactly the same if you were putting £300 into savings, or even if you say to the mortgage lender "I have been paying back Aunty Enid for an old loan, and that is the last payment", or if you have been choosing to give £300 to a poor relative but have no obligation to continue to do so. Really its not any of their business what you choose to do with your money after servicing your legal debts. The point is that in the event of interest rates shooting up to 20% and your monthly mortgage payments becoming unaffordable, you legally could stop paying your relative in order to funnel more money into your mortgage, and if even that failed and you were declared bankrupt your relative would have no claim for a share of your assets. That's why they don't really care.

I made quite a few applications in a row and got rejected for a few of them, but this was about 2 years ago now.
This is why your score is so low. I don't know how far back the scoring companies look but eventually that will be so long ago it no longer matters

Please don’t lie on your mortgage application - it’s fraud. If you have an obligation to pay back the family member, and it sounds like there is a formal agreement as you mentioned a payment plan, then you need to tell the lender. As you say they will see it on your bank statements.
It will effect how much you can borrow - but for a good reason - you need to be able to pay the mortgage and the loan and the affordability calculation will reflect this.

Is your credit card debt with a debt management company?

The relative debt won’t be taken into consideration on your application, it’s not a question they ask so won’t be something you need to disclose.

They may ask for salary fed bank statements so if it’s on there they may ask what it is or may not.

Searches should come off after twelve months however if there isn’t a lot of other activity on there’s then that’s why it will be low. If you are paying off your cards at 600 a month they should go soon and limits vs borrowings will be low and that improves your score.

First and foremost, forget your “scores” (they don’t actually exist you know, no one sees them but you!) or a poor / excellent rating
.
Lenders care more about your history in terms of late / missed payments over the past six years. What’s your situation in regards to this?

Your credit card debt isn’t horrendous and the family debt won’t be counted. Lenders will just take into consideration your CC debt when calculating how much to lend you based on how much they think you can afford to borrow.
In other words, if they offer you a mortgage you will be offered slightly less than if you had no debt.

I cannot thank you all enough for your kind words and fantastic advice - this has really reassured me and given me so much excellent advice; bad news for you as you will never get rid of me now!

@Yimmini, I see your point - that could be any outgoing and there could be any amount left. Thanks for this, and for the reassurance that the applications will eventually not count. I guess to a certain degree improving a bad score is a waiting game.

@Eminybob thanks so much for your advice on this. apologies if I have been unclear; there is no formal agreement whatsoever in place, and in fact this particular family member has been so kind and accommodating over this, but that is part of the reason I want to stick to a 'plan' (for lack of a better word!) which will slowly go up as I get into a better position and get rid of other debt. Hope that has clarified

Hi @Regina (great name) no, my credit card debt is still with the CC companies themselves and is manageable - i have never been on a debt plan (close call at one point!) and have never missed paying at least the minimum repayment. I would imagine they would ask about what will then be £400 going out of my bank every month, so I'm thinking it might be better to just disclose that up front rather then look like I'm hiding anything, if that makes sense? By Dec I'm planning on having £1422.83 left on CCs and owing £6479 to the relative; do you think this would make a big dent in what they would lend us? Also, I don't suppose anyone knows if I would need anything in writing from the relative for the lender to know what is left, or would they take my word for it (I realise how naive that may sounds - sorry!)

Yes I think you could well be right, that there isn't much other activity and that's why it is still showing. Is there anything in particular I can do to try and get it up again quickly, other then just paying off as much as I can, as soon as I can?

@lottie thank you SO much - you have no idea how reassuring I found your message and how much I needed to hear something like that! I didn't quite realise how anxious I was about all of this until I started talking here about it - money is such a weird subject isnt it?!

The lenders will see my score, won't they?

I haven't ever had a late or missed payment so that should stand me in good stead

That's really reassuring - when I got back on top of everything it seemed totally impossible, but I am slowly chipping away!

Will the fact that my partner has great credit and no debt make up for my issues?

Hi all,

I have been doing some investigative work and it turns out I do have one late payment on a load in March 2016. Is it worth working to get that revoked? Without going into too much outing details, I had relatively extenuating circumstances (injury!) so if I call the people in question, would they potentially revoke it, and would it make a huge difference?

The lenders will see my score, won't they?

No they won’t. Literally no one sees it but you.

TBH I don’t think the late payment will be removed if it’s factual. But one late payment shouldn’t make too much of a difference, try not to stress

Thank you lottie and everyone else for your lovely and wise words

My dad lent me a large sum of money for my house deposit which I was paying back monthly, the mortgage lender didn't ask me anything about it. I used a broker and completed a monthly budget outgoings sheet for which had the monthly payment to my dad on, I assume this was shared with the bank,
I would recommend using a decent independad broker, as well as looking for a good deal for you they'll be able to advise on e.g whether you can get a better mortgage deal if you pay off all your cc debt before applying.