Q I am 27 and for the last three years I have been saving (£20,000 so far) and I am hoping to continue saving for the next few years. I have recently asked for my credit report and things are not looking good. I had an outstanding debt of £370 which has now been paid off in full. This debt was from an old student credit card which I stupidly forgot. The debt was sold to debt collectors and when they got in touch I paid straight away. I have also noticed a county court judgment (CCJ) on my credit file for over £900. Obviously this is more serious and will be paying it off once I get in contact with the courts.
These debts mean that my credit rating has gone down dramatically, so my main question is how do I build up my credit rating? What is the best way to do this? I have two credit cards, both of which are paid in full each month, I also have a phone contract on which I missed two payments a few years ago, and two current accounts. One is a graduate account with an authorised interest-free overdraft of £1,400 and the other has no overdraft at all. I have been told to pay the minimum on one credit card each month and one in full each month. What is your advice? I am aiming to get a mortgage in three years' time. How long will it take to get my credit rating back up to 4/5 or 5/5? I am now in a well paid job (£2,000 a month after tax not including bonus) and my outgoings are below £1,000 a month. My job is secure and I have been with the same employers for three years. MH
A Paying off the debt of
£370 should already have helped improve your credit history as will clearing the £900 CCJ. However, the CCJ will remain on your credit file until six years after the original court case. What you can do, though, is to ask the court for a Certificate of Satisfaction once you have cleared the debt. You'll need to present it before a credit reference agency will update your file to show that the CCJ has been "satisfied". This will tell lenders that you have cleared the debt. As far as your missed payments go, they will remain on your file for at least three years but you can ask for a Note of Correction to be added to explain any special circumstances that may have caused you to miss payments. You should make sure that you don't miss any more payments and that you don't pay late.
The advice you have been given about your credit cards is nonsense. Paying both credit cards off in full every month – as you currently do – is good because it shows that you are managing your borrowing and so should improve your credit score. Switching to paying off only the minimum on one of the cards could suggest you are getting into difficulty and so have a detrimental effect on your credit score. Instead of paying off the minimum, you could get rid of one credit card altogether. When calculating a credit score, lenders take into account what you could borrow rather than just what you owe, so closing down lines of credit that you don't use could help to improve your credit score. Finally, make sure you are registered to vote as lenders always check the electoral roll to make sure that you are who you say you are and live at the address you give on your credit application.