Will paying off debt improve credit score?

[SlothMamaToBe]

My DP and I are looking into buying our first home. Unfortunately we have been declined an agreement in principle due to my DPs credit score. (I have never had a credit card and have a good score) . He has a history of debt issues which now on top of and he is currently paying off a credit card - around £1000 left. I’m wondering if I were to give him the money to pay off his debt would that sort the credit issue? We are otherwise in a really good position to buy but I wouldn’t be able to afford the home we need on my own. Both earn a good wage and I have a good deposit. My DP could then pay me back slowly over a couple of years without worry of interest etc.
Thoughts and knowledge much appreciated!

Sorry, but do you think this is wise right now? You have £60k deposit, he has nothing. You both have "good wages" but it will take him years to pay you back £1,000. And the reason for declining him (assuming that is the case) does not really stack up. It sounds like a significant financial risk for you, never mind any lender.

OP, this might help re: Debt Management / Payment plans. Do you know which one he used? Stepchange maybe? I'd urge you err on the side of caution...

Being in a DMP makes it very hard to get a mortgage for three reasons:

1	it damages your credit file
2	it involves a monthly payment to your debts – this is a monthly commitment which goes into the “affordability” calculation
3	it is a flag that you have had money problems in the past which are still persisting.

Thanks for all the useful info. I had a good chat with him. He promised me he has never been in more than 5k worth of debt. Has not missed any payments on this credit card but himself requested to go onto a plan because it was becoming a bit expensive (about a year ago). When we found out we were rejected yesterday he rang the credit card company straight away and asked to come off the plan. We are hoping that this in itself will make a difference. He has never had CCJs it defaults but admitted he missed a couple of payments years back. The broker advised to wait 6 weeks and recheck the credit report to see if coming off the plan makes a difference. I really hope so...initially we were told we were in a great position to buy. I only mentioned him paying the 1k back over a couple of years because it wouldn’t bother me to have it back in big instalments. It’s promising to hear that others have had success with getting a mortgage with a dodgy credit history.

If it’s a default, which sounds probable if he was on a payment plan, then paying it off wont improve your chances. The default will still show on the credit file for six years whether settled or not.

@livelovebehappy - on his report it stated no defaults BUT if being on a plan is classed as a default then is there any hope at all getting a mortgage or will it be a flat out rejection ?

The only other thing I can think of that I read about was that sometimes you can be linked to someone else’s credit rating and not always be aware?? His mum had/has serious debt issues - if they were previously registered at same address would this have any effect on him?

Being on a payment plan will show as an arrangement on his credit file - which highlights to a lender there has been an issue making payments/coping with the level of repayments. If this has only been changed recently, as in, your DH has just asked this month to remove it, then it won't have updated on his credit file and therefore will still show as an active arrangement. While not great, if this is genuinely all there is, it shouldn't necessarily be a barrier to lending, especially not with such a low balance.

Lack of substantial credit for yourself, so if you've only had a mobile and bank account, doesn't make you "sub prime" but you're not prime either. You've no proven history of maintaining large payments and really you're still a bit of an unknown. Had you had cleared car finance or loans, there would at least be some history of your ability to make and maintain substantial payments.

I'd get a copy of your experian report, and his, and go over with a fine tooth comb. Then contact either a specialist broker, or give it another 6-12 months before reapplying.

It's not a good idea to start taking finance out if you intend to go for a mortgage immediately, but if you do think about waiting 12 months, I'd suggest a credit card at the very least. Make sure you spend and clear in full each month - if you just take it out and not use it, it generally shows as a U (unreported) which doesn't help build up a strong score.

Forgot to say, a payment plan is not a default. Usually you'll enter a payment plan before it reaches default stage, and if you don't maintain that, it will hit default. You wouldn't generally have a default without knowing about it, as you'll be issued with a notice of default.

While clearing them off doesn't remove them from file, a lender can see the default and current balance, so it does look better from an intent point of view that it has been cleared. It does very little for the overall credit score.

If he has defaulted and cleared the balance, he can ask the lender to remove it from his file as a gesture of goodwill. You'll be surprised how many do.

Credit reports tell you of financial links.

Get all 3 - Experian, equifax and transition/credit karma, they may all have different info as different firms report to different credit agencies. If he is financially linked to anyone, you can 'divorce' yourself by contacting the credit agency. I had to do this from my ex, despite not having any linked products for about 8 years, I was searched when he made a mortgage application. It wasn't an issue because my credit is fine, but it could have been!

I would highly recommend signing up for the money saving expert credit club as it enables you to check your credit report yourself for free every month.

It is highly likely that the payment plan is the problem. The other thing could be lots of hard searches on his credit file.

Also worth checking there is no inaccurate data, that he is on the electoral roll etc.

If the remaining debt is just £1000 then paying it off in full is unlikely to make a significant difference. Making payments above the minimum will help a bit though.

I'm confused about why he needed a payment plan though if the pair of you have a £60k deposit saved.

Is the whole £60k deposit from you?
If so, have you considered protecting it in case things go south down the line?

Bad debt stays on your record for upto 6 years and your lack of credit will impact your borrowing. Even paying off his credit card won't erase the bad debt. Several years will need to have passed to make an impact.

Loads of really useful advice here. Yep the 60k is just me - our broker said about getting the solicitors to sort some type of deed out , so that I’d own the majority of the house. Will investigate whether or not he can get anything removed from his file from previous history and any ties to his mum. Trying to be positive as it would be crazy for us not to be able to buy when he has so little debt to pay off now. I wish that I knew about this before getting my hopes up but he genuinely thought it wouldn’t be an issue as he said he’s been on top of everything for so long. Fingers crossed there is a lender out there who is happy to take us on.

The more times you apply for credit the worse your score will get if you've done it over a short space of time

It's good to have credit and that actually helps your score, as long as you don't miss a payment and you're not using more than a certain % of your credit

Missed payments and defaults will continue to affect your credit score for years

Download equifax, credit karma and clear score. They will help you understand where he's gone wrong and what to do to improve it.

You need to get reports with all the credit agencies. It could be there is an error on one that needs correcting (mobile phone companies can be utter shites for this).
Credit score comes from a bunch of things, if he's lowered his available credit by having a card limit reduced or cancelling a card that will lower the score.

You should buy a place on your own.
Financial divergence like this is only going to get much much worse over time and owning together.

If in doubt get independent legal advice.

Your taking a huge risk with this and I’m not sure he’s telling you the truth here. I’ve had more debt than that and not been refused a mortgage.
You need a deeds of trust which clearly sets out that you own a percentage of the property or £60,000 whichever is greater. E.g. so if it’s £100,000 you own 60% therefore if it goes up in value to £200,000 you will then own 60% of that. However, if the property goes down in value you will still get your £60,000 back and not just 60%. This protects your money and exact what I had to do.

I would get in contact with London & Country mortgage brokers, as they provide free mortgage advice and arrange mortgage applications on a no-fee basis.

The transunion credit report should tell you what steps you can take to improve your score.

I check my credit score monthly for both Experian and CreditKarma (Transunion). I only use the free version but by following the recommended steps I can always get my credit back up to a minimum of good and usually excellent ahead of remortgage time.

You need to ignore the score. It’s just what that individual credit agency shows for illustration, if doesn’t mean anything else. All the companies you apply to will do their own scoring.

He needs his reports from all of the main three - Transunion, Experian and Equifax.

His debt won’t be linked to his mum if he hasn’t shared any financial accounts with her. Address blacklisting isn’t real, and hasn’t been since well before I started working in finance. If he is linked to her through credit accounts, she’ll show as an associated person on his reports.

Right now, mortgage lenders are being quite cautious; and if he’s been on an agreement to pay a credit card, that might be enough to make them cautious. That means he couldn’t afford to make the payments. Paying the debt off completely might help with affordability but won’t have a effect, as it’s only £1k, and it’s probably not going to affect the fact that he was on a payment plan... who was that with? Typically the big usual credit providers won’t entertain a payment plan unless there has been missed payments/defaults. If it was sub-prime credit already, that’ll make a difference too.

You need to buy his reports from all three places, and look at his actual reports, not his score. It takes six years for things to drop off your report, so all the debt he has had in the last six years will show, but typically anything that’s old (4-6 years) will be less of a concern than anything recent (1-2 years).

You also want to consider that buying a house together will make you financially linked, and his score might affect yours. My ex partner had an okay report, mine was pretty good. As soon as we had a join product, mine tumbled and it took two years to get the credit reference agents to disassociate us after our financial link ended. This might be relevant if you’re planning to buy anything else on credit.

A broker will be able to tell you what mortgage providers will accept you with your files as they are, and they’ll have an even better idea if you send all the files. It’s possible that it’ll need to be a subprime lender if the payment plan is recent, so you may need to budget for a higher interest rate.

Best of luck!

@SlothMamaToBe

It’s definitely £1000 on the card he was struggling with. We went to a broker who told us we were declined and after doing w credit check found it was my partner with the issue. His credit score was only a little bit below what’s considered ‘good’ so I am surprised we were declined but I think it was to do with the fact he was on a payment plan with it until recently when he’s changed to direct debit to pay it off. I have a good deposit £60k so we can definitely afford it just need them to accept us!

It will be the payment plan that has impacted you both. This might take a few years to clear. I think he needs to review his full credit report.

I got a mortgage recently with 10k of debt and my partner was bankrupt a few years ago. There's no way you've been declined because he has £1000 on a credit card.