Does overpaying a mortgage damage your credit rating?

Dear James,

I have been told that if you overpay your mortgage it can affect your credit rating in a negative way, I would just like to confirm if this is the case.

David, Streatham

Dear David,

I suggest you cross whoever told you that off your Christmas card list! Overpaying your mortgage should not damage your credit rating at all. In fact, reducing your outstanding debts more quickly is only likely to have a positive effect on both creditworthiness and affordability calculations. Having very high levels of outstanding debt can spook would-be lenders, for understandable reasons. A word of warning though. Don’t fall into the trap of missing contractual monthly repayments simply because you’ve previously made overpayments. Many credit agreements, such as credit cards, loans and mortgages, come with an obligation to make a minimum contractual payment before a certain date every month. Completely missing a payment one month is likely to result in a late payment being registered on your credit report – even if you paid more than you needed to the month before. The best way to make sure you don’t fall into this trap is to set up direct debits to cover the minimum contractual payment each month. Then, if you want to pay a bit or a lot more, you can always top up the repayment separately. Always check first that overpayments are allowed because sometimes this can result in a penalty. (November 2013)


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