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Thread: Credit ratings and paying off mortgage?

  1. #1
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    Credit ratings and paying off mortgage?

    So my credit rating took a beating like so many others, I am getting back on track after redundancy and wanted some advice.
    Do I pay off the last £2k on my mortgage and become a "home owner" or do I keep the mortgage going as credit ref agencies seem to want to see a mortgage on your credit report.
    Logic says that a paid off debt is better than an outstanding one, but the stuff I have read seems to show differently.
    Any advice from those in the know would be appreciated.

  2. #2
    Master Red Steve's Avatar
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    Quote Originally Posted by uktotty View Post
    So my credit rating took a beating like so many others, I am getting back on track after redundancy and wanted some advice.
    Do I pay off the last £2k on my mortgage and become a "home owner" or do I keep the mortgage going as credit ref agencies seem to want to see a mortgage on your credit report.
    Logic says that a paid off debt is better than an outstanding one, but the stuff I have read seems to show differently.
    Any advice from those in the know would be appreciated.

    If you pay it off it will still show on the credit agency reports...Experian & Equifax being the main two for several years. If you have a credit card and clear this monthly or just retain a nil balance this will be a positive on your credit report.

    Also things like mobile phone accounts car insurance (if paid monthly) can also show on your credit report and as long as paid each month help to improve your credit rating too. Personally I'd pay it off if you are able to.

  3. #3
    It depends on the type of mortgage,
    I kept mine at zero for many years as it was a good/cheap way to borrow money when needed. It also came in handy when I divorced as I ported over the deal to my new home.

  4. #4
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    Quote Originally Posted by Barton Red View Post
    It depends on the type of mortgage,
    I kept mine at zero for many years as it was a good/cheap way to borrow money when needed. It also came in handy when I divorced as I ported over the deal to my new home.
    Standard variable, no fixed things, repayment only.

  5. #5
    Master Alansmithee's Avatar
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    Quote Originally Posted by uktotty View Post
    So my credit rating took a beating like so many others, I am getting back on track after redundancy and wanted some advice.
    Do I pay off the last £2k on my mortgage and become a "home owner" or do I keep the mortgage going as credit ref agencies seem to want to see a mortgage on your credit report.
    Logic says that a paid off debt is better than an outstanding one, but the stuff I have read seems to show differently.
    Any advice from those in the know would be appreciated.
    To cut a long story short - forget obsession about the rating - all you are interested in is the history is accurate. The reason for this is that the score means nothing - most lenders* use the credit history and their own internal scoring systems that have little to no relationship to the number that you see - indeed when Experian got taken to the financial ombudsman about a consumer about a wrong credit score their defence was that become only the consumer sees it it does not matter!

    I'd pay off the mortgage myself as depending on who you approach for credit if they are interested in such things they will ask during the process.



    * Some do buy the agencies credit scoring systems but even then it's tweaked and married up with internal information.
    Last edited by Alansmithee; 21st January 2021 at 12:54.

  6. #6
    If you are looking to rebuild your rating I would leave it on. Also, take out a few credit cards and spend a little on them each month and clear the balance in full so you don't incur any interest. Most credit ratings just look at payment history and having a few credit payments a month will rebuild your rating quicker than having none. Most checks are done automatically so you won't get the chance to explain why you paid off your mortgage etc

  7. #7
    Master Alansmithee's Avatar
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    Quote Originally Posted by NikGixer750 View Post
    If you are looking to rebuild your rating I would leave it on. Also, take out a few credit cards and spend a little on them each month and clear the balance in full so you don't incur any interest. Most credit ratings just look at payment history and having a few credit payments a month will rebuild your rating quicker than having none. Most checks are done automatically so you won't get the chance to explain why you paid off your mortgage etc

    Except these count as hard searches and they will reduce your score on that basis - but ​as mentioned the score is made up so I wouldn't worry about it too much.

  8. #8
    Grand Master AlphaOmega's Avatar
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    As Alan says, ensure the history is accurate. Check through it and correct anything that's not right. I think there are three CRAs in the UK. I've only dealt with Experian as I get them to advise me if my rating changes.

  9. #9
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    Quote Originally Posted by Alansmithee View Post
    To cut a long story short - forget obsession about the rating - all you are interested in is the history is accurate. The reason for this is that the score means nothing - most lenders* use the credit history and their own internal scoring systems that have little to no relationship to the number that you see - indeed when Experian got taken to the financial ombudsman about a consumer about a wrong credit score their defence was that become only the consumer sees it it does not matter!

    I'd pay off the mortgage myself as depending on who you approach for credit if they are interested in such things they will ask during the process.



    * Some do buy the agencies credit scoring systems but even then it's tweaked and married up with internal information.
    If you do identify a discrepancy speak with the respective agency, avoid the notice of correction approach as this may affect your credit rating negatively.

    In the context of access to government benefits ( if required) some borrowers may find it better to have a mortgage, not own their own home.

  10. #10
    Grand Master AlphaOmega's Avatar
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    Quote Originally Posted by joe narvey View Post
    If you do identify a discrepancy speak with the respective agency, avoid the notice of correction approach as this may affect your credit rating negatively.
    Joe, is that if the new information is worse than the old, or does the actual fact of correction mean a negative effect?

    If the latter, it sounds like the way insurance companies increase premiums for those who have no fault accidents.

  11. #11
    I would keep the small mortgage amount outstanding. I had quite a bit of difficulty trying to get credit in the past, despite owning two properties with no mortgage.

    My problem stemmed from me not having a credit card, and not having existing loans or mortgages.

    From increasing my credit rating over the last few years or so, it appears that the more use of credit I have to show regular payments with no defaults the better risk to lend money to I am.

    Of course every lender will use its own criteria for lending, but they still use the exact same background information to come to their conclusion.
    It's just a matter of time...

  12. #12
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    Quote Originally Posted by uktotty View Post
    So my credit rating took a beating like so many others, I am getting back on track after redundancy and wanted some advice.
    Do I pay off the last £2k on my mortgage and become a "home owner" or do I keep the mortgage going as credit ref agencies seem to want to see a mortgage on your credit report.
    Logic says that a paid off debt is better than an outstanding one, but the stuff I have read seems to show differently.
    Any advice from those in the know would be appreciated.
    In 2004 I owned my house with a cleared mortgage and I have never had any problem getting a credit card. I have a £10K limit on my cc and I have been told over the phone that I could increase it without any fuss. I always clear my cc in full at the end of the month which may possibly affect my rating.

    Once you have cleared your mortgage you should not really need to buy stuff on credit, just save up and pay up front in full. So clear the mortgage and enjoy the fact that no bloody bank has a claim on your house.
    Last edited by Mick P; 21st January 2021 at 14:12.

  13. #13
    The main reason to keep a small balance on your mortgage long term was that it meant the mortgage company would store your deeds for you free of charge, whereas if you paid it off, they would charge, or send it to you to pay to store it elsewhere. Now all deeds are electronic and held at land registry, that doesn't matter any more.

    I'd pay it off, it's not an easy source of credit any more, an application now to borrow more is given the full affordability treatment as if it was a fresh application, so that benefit is no more either.

    If you haven't got one, get a credit card, do all your spending on it (handy for bigger purchases, as you get extra consumer cover, you can also get cash back credit cards that pay 1 or 2% back of everything you spend, a permanent discount effectively), then set up the direct debit to clear it in full each month, no interest will be payable. Having credit cards and/or HP balances that are paid on time every month are a good thing. Using more than 50% of your credit card balance is a bad thing, so don't go spending £1k a month on a card with a £1.5k limit, always stay below 45-50%

    Make sure you're on the electoral role at your current address, that's a big one

    Having credit available to you and paying every month - good, shows you're a good payer
    Using too much of your available credit - bad, makes you looked stretched finacially
    Late payments - bad, obviously
    Applying for credit, a hard search - bad (but only short term, they don't want to see lots of applications in a short window, makes you look desperate)
    Electoral Role - good
    Having no mortgage or credit card or anything - Bad, there's no 'history' to see if you're currently a good payer or not
    Last edited by Brighty; 21st January 2021 at 14:39.

  14. #14
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    Thanks everyone, looks like the consensus is to pay it off and use the credit cards to buy stuff not the debit card.
    thanks for all your input.

  15. #15
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    Pay the mortgage off and don’t borrow in the future, if you don’t borrow you don’t need to worry about credit ratings.

  16. #16
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    Quote Originally Posted by walkerwek1958 View Post
    Pay the mortgage off and don’t borrow in the future, if you don’t borrow you don’t need to worry about credit ratings.
    Very wise words and like you say, who gives a damn about credit ratings.

  17. #17
    Quote Originally Posted by Mick P View Post
    Very wise words and like you say, who gives a damn about credit ratings.
    A largely made-up metric that gives the 'industry' something to charge the gullible for.

  18. #18
    Quote Originally Posted by uktotty View Post
    Thanks everyone, looks like the consensus is to pay it off and use the credit cards to buy stuff not the debit card.
    thanks for all your input.
    Some years ago I signed up with Credit Karma, a company that provides you with your credit score.
    It was a useful exercise and it flagged up a minor error in my financial details which was from many years before and of which I was unaware of. CK guided me on how to easily correct it showed me how to correct it. Duly done and low and behold, my score went up by quite a factor.

    I still get updates from them, not that anything much has changed over the subsequent years, but along with my latest 'score' it also tells me what I could do to improve it. Intrigued, I looked to see what could be done and essentially it was to get a credit card, or indeed several of them.

    What a crazy world we live in whereby the lack of a credit card (haven't had one in decades) is regarded as a negative for your credit worthiness...

    Quote Originally Posted by walkerwek1958 View Post
    Pay the mortgage off and don’t borrow in the future, if you don’t borrow you don’t need to worry about credit ratings.
    This.

    R
    Ignorance breeds Fear. Fear breeds Hatred. Hatred breeds Ignorance. Break the chain.

  19. #19
    Quote Originally Posted by ralphy View Post
    Some years ago I signed up with Credit Karma, a company that provides you with your credit score.
    It was a useful exercise and it flagged up a minor error in my financial details which was from many years before and of which I was unaware of. CK guided me on how to easily correct it showed me how to correct it. Duly done and low and behold, my score went up by quite a factor.

    I still get updates from them, not that anything much has changed over the subsequent years, but along with my latest 'score' it also tells me what I could do to improve it. Intrigued, I looked to see what could be done and essentially it was to get a credit card, or indeed several of them.

    What a crazy world we live in whereby the lack of a credit card (haven't had one in decades) is regarded as a negative for your credit worthiness...

    This.

    R
    This is why the subprime market did so well all those years ago ( I worked for one) anyone without any credit could not get anything from the banks so they came to companies like I use to work for to get something on their credit file. We had some very wealthy clients, they would take out a loan and pay it off after a few months. Then get a few credit cards to build their credit profile. Even if you do not need a credit card it is still worth having one to keep the score going.

    I don't need my credit card but use my Tesco one for everything we spend on a monthly basis, it gets paid off in full every month. Helps me keep track of spending (or should I say my wife's spending), gets me Tesco points (I got a full Omega service on my points a few years back), and keeps my credit history looking good. I do not see any downside to doing it this way. I did pay my mortgage off tho.

    The credit scoring checks need some sort of payment history to determine the risk of leading you anything.

  20. #20
    Quote Originally Posted by Alansmithee View Post
    Except these count as hard searches and they will reduce your score on that basis - but ​as mentioned the score is made up so I wouldn't worry about it too much.
    Yes, hard searches will lower your score, but getting accepted for cards boosts your score as does the subsequent payment history. So yes you will get an initial dip in your score but the net result will be positive.

    Also, apply for them on the same day (if you wanted two) as the searches don't always appear straight away.

  21. #21
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    Quote Originally Posted by AlphaOmega View Post
    Joe, is that if the new information is worse than the old, or does the actual fact of correction mean a negative effect?

    If the latter, it sounds like the way insurance companies increase premiums for those who have no fault accidents.
    It used to be any notice of correction positive or negative. It’s better to use GDPR to require inaccurate data than argue and issue these notices. The agencies want the data to be accurate so they will work with you.

    A notice of correction is your 200word max opportunity to put your side of the story. It should not affect your automated calculation of credit worthiness, but it will delay processing, will require manual review by the lender.

    You may score the points for a loan but the lender may decide against based on the wording especially given it’s your side of the story on a factual entry on your record.

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