Will clearing my credit card help me get a mortgage?

Dear James,

I am currently using 20% of my available credit and I wanted to know if clearing this credit card debt would improve my credit score which is currently 742. I am looking around for mortgages but, although I have a 25% deposit, I will still have trouble finding a lender who will lend the 45k I need to buy the property I have seen because of my low salary. I would need to borrow 4.5 times my salary so I wondered if clearing the debt would help. I would like to apply for a Co-op mortgage and I asked them about clearing the debt and they said it wouldn't make much difference because they only take into account 25% of available credit. Your thoughts would be welcome.

Natasha, Liverpool

Dear Natasha,

It’s definitely wise to keep a close eye on what we call ‘credit utilisation’ – that is, the amount of available revolving credit, such as credit cards and store cards, that you regularly use each month. It’s great that you’re keeping your borrowing to below 25%, which is what we recommend. Your credit rating should be benefitting from this already. Paying off your credit card debt in full may help some credit scores but probably not significantly. In terms of your current challenge, though, I don’t think this will help you at all.

Mortgage lenders operate to very tight rules as far as affordability is concerned, so there is likely to be little wiggle room on their qualifying criteria around income multiples. What you could do though is consult a reputable mortgage broker to see what they suggest. Of course, they may advise that your best course of action is to find a cheaper property or, perhaps, to wait a bit longer while you build up a larger deposit. If you do consult a mortgage broker it will probably help them if you take a print out of your up-to-date credit report with you. Good luck! (June 2013)


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