Mortgage application - pay off credit card or leave savings untouched.

loveisdivine

Simple question really, my husband and I both have about €300 each on our credit cards. We have more than enough savings to pay these off, but would the bank rather see no outstanding debt, but a withdrawal from the savings or would it be better to pay the debt off over the next 2/3 months and leave the savings untouched?

We will be applying for a mortgage in about 4 months, so want things to look as good as possible. I'd imagine being debt free for those 4 months would help.

lcwill

I am not in the business of reviewing mortgage applications but any outstanding credit card debt would seem to be a huge warning sign for me.

If you are not paying it off in full every month, either you are unable to because you finances are so tight, or you do not understand how to manage your finances.

Alkers

If you can pay off the debt in the next 2/3 months without touching your savings or reducing the amount you are saving each month, then that would be the option I would go for.

Assuming you're not going to the back for 4 months, at which point you will have no credit card debt and will be able to demonstrate your savings habits for the past 6 months.

seamus

Simona1986 wrote: »

If you can pay off the debt in the next 2/3 months without touching your savings or reducing the amount you are saving each month, then that would be the option I would go for.

This.
€600 is not a lot of credit card debt, but the bank need to know that you don't leave your CC balance lying around for a long time.

sunnyday1234

pay off credit cards today and dont get into debt with them again until after mortgage has gone through

loveisdivine

If it makes any difference, our combined savings are about 38k so 600 wouldn't make much of a dent. We wouldn't be using them again after paying them off. We would have paid them off already but we had some unexpected costs over Christmas.

I know that neither of the 2 options are ideal. To be honest, clearing them down would make me feel less stressed, I just don't want it to effect our chances too much.

I wouldn't see 300 each as something that will bother a bank that's a very reasonable amount to have on your card if you use it regularly.

I would say it's a bit unreasonable to expect people to have a clear credit card when applying, particularly those who use it regularly or those who use it for work travel etc and would be claiming back the expenses to pay off the card etc as this takes time.

witchgirl26

I know from talking to the bank myself that the main red flag they look for on credit cards is if the balance isn't paid in a timely manner i.e. going over the month it's due in. Otherwise they didn't really mind at all as they could see I paid mine off every month no matter how much it was. Don't think it should affect you too badly but maybe a quick call to the bank just to be sure might be the best plan.

loveisdivine

Well I don't clear it every month, but I pay more than the minimum.

Edit - also want to add that we expect our mortgage payments to be around €750 per month and between us we have been saving €1300 a month. In hindsight, we perhaps should have saved less for a few months and cleared the cards that way.

wench

Using it is fine, but carrying a balance is not.
I was asked for 6 months of statements for my application, so they want to see a history of it being paid off promptly, preferably in full when due.

loveisdivine

I'm thinking perhaps paying it off would be best. Yes there will be a withdrawal of €300 from each of our savings. But at least we will 4 months (at least) of debt free savings after.

tmh106

loveisdivine wrote: »

Well I don't clear it every month, but I pay more than the minimum.

Edit - also want to add that we expect our mortgage payments to be around €750 per month and between us we have been saving €1300 a month. In hindsight, we perhaps should have saved less for a few months and cleared the cards that way.

Credit card is the most expensive borrowing you will ever make (assuming you never resort to loan sharks). If you have the money available to pay it off every month then I would do that. Not for reasons of being seen to have a good credit rating, rather because financially it seems like the most sensible thing to do.

I wouldn't touch your savings - you shouldn't have to dip into savings to pay bills.
Equally I wouldn't reduce your monthly savings - you shouldn't have to dip into this for spending.

Pay it off over the next few months - but have it gone before the application.

Assuming your savings are kept separate from your current account.

pxdf9i5cmoavkz

Banks typically only care if you have enough disposable income per month to pay off a monthly debit (the mortgage in your case).

If you choose to pay off the 300 CC debt today using your savings money, it will not have any adverse affect on your chances. Again, the banks are more interested in whether you have enough disposable income per month.

My recommendation would be to pay off that CC debt now and then start saving. Having extra cash for any unforeseen costs will be handy.

I am assuming you've been well behaved in the payments of any other debts.

Alkers

JasonS246 wrote: »

Banks typically only care if you have enough disposable income per month to pay off a monthly debit (the mortgage in your case).

If you choose to pay off the 300 CC debt today using your savings money, it will not have any adverse affect on your chances. Again, the banks are more interested in whether you have enough disposable income per month.

My recommendation would be to pay off that CC debt now and then start saving. Having extra cash for any unforeseen costs will be handy.

I am assuming you've been well behaved in the payments of any other debts.

I disagree, we've been told that we need to have 6 months of a regular amount going into our savings account each month and this money not being touched. Whatever this amount is, plus any rent amount your currently paying is what the bank will deem you can afford as a mortgage repayment. If you dip into your savings, you could be delaying approval by 6 months until you can demonstrate a 6-month period of not touching your savings. Also, if you reduce your monthly saving amount for a month or two in order to clear the debt, this reduced amount is all the bank will think you can afford, even if you've been saving more in the months beforehand and afterwards.

johnnyskeleton

loveisdivine wrote: »

If it makes any difference, our combined savings are about 38k so 600 wouldn't make much of a dent. We wouldn't be using them again after paying them off. We would have paid them off already but we had some unexpected costs over Christmas.

I know that neither of the 2 options are ideal. To be honest, clearing them down would make me feel less stressed, I just don't want it to effect our chances too much.

As general financial advice:
1) dont save while you have outstanding interest bearing debt;
2) pay down the highest interest loans first.

I appreciate that people sometimes like to have the savings pile untouched and think of debt in strange ways e.g. the mortgage is just a monthly payment, not a debt or that credit card debts are for lifestyle expenses so you shouldnt dip into your life savings/property deposit to pay off consumer spending.

However, in terms of basic maths if you get 1.5% interest on the €300 in your savings while paying 11.5% interest on your credit card, you are basically giving the bank €30 per year or about €3 per month.

As regards touching the savings, I doubt a bank would mind if you take out one or two small lodgements like this. You can easily explain it if it is seasonal debt i.e. christmas presents etc. Or if its a longstanding debt you can explain how it made financial sense to pay it out of savings and then retop up the savings in the months afterwards.

Banks will prefer to see that you pay your debts on time than to see you never touching your savings.

Again, its such small amounts that I doubt they would hold it against you.

But at the end of the day Internet advice can only bring you so far and there is clearly a difference of opinion on this issue. Call into your bank for mortgage approval in principle (it doesnt matter if youre not ready to buy just yet) and ask them what they think about paying the cc vs not reducing the savings.

SarahMollie

loveisdivine wrote: »

Simple question really, my husband and I both have about €300 each on our credit cards. We have more than enough savings to pay these off, but would the bank rather see no outstanding debt, but a withdrawal from the savings or would it be better to pay the debt off over the next 2/3 months and leave the savings untouched?

We will be applying for a mortgage in about 4 months, so want things to look as good as possible. I'd imagine being debt free for those 4 months would help.

I don't see why people roll over debt on credit cards. They're useful but should be paid off every month as otherwise the interest rates are extortionate.

Disclaimer - I dint work in banking but IF i did, I would take a negative view of anyone who is happy to pay interest on a credit card whilst at the same time having savings which in todays climate are probably earning little to no interest in real terms. You're essentially losing money on two fronts, so I would be inclined to think you're not the best an understanding/managing money.

loveisdivine

Thanks for all the replies. I've decided to pay it off. If the bank don't like it, then I guess we will have to wait an additional 2 months and go back when we have a full 6 months of no debt and not touching savings.

I think I'd rather do it that way, at least now, I'm debt free and it's one less thing for me to worry about.

We've never taken out any loans and never missed any payments on credit cards, so that's 1 thing at least.

SarahMollie

Simona1986 wrote: »

I disagree, we've been told that we need to have 6 months of a regular amount going into our savings account each month and this money not being touched. Whatever this amount is, plus any rent amount your currently paying is what the bank will deem you can afford as a mortgage repayment. If you dip into your savings, you could be delaying approval by 6 months until you can demonstrate a 6-month period of not touching your savings. Also, if you reduce your monthly saving amount for a month or two in order to clear the debt, this reduced amount is all the bank will think you can afford, even if you've been saving more in the months beforehand and afterwards.

I might agree if this was a significant sum but €600 is so inconsequential, I cant imagine it would matter, especially if you can explain it by telling them that the purpose was to clear credit card debt that was at x% interest and therefore costing you money.

I think a few hundred euro over Christmas is normal for everyone so i cant imagine it being a major red flag.

Also, they're currently saving a lot more monthly than they need to repay their mortgage, so they're probably demonstrating savings far in excess of what they actually need to as things stand.

SarahMollie

SarahMollie wrote: »

I don't see why people roll over debt on credit cards. They're useful but should be paid off every month as otherwise the interest rates are extortionate.

Disclaimer - I dint work in banking but IF i did, I would take a negative view of anyone who is happy to pay interest on a credit card whilst at the same time having savings which in todays climate are probably earning little to no interest in real terms. You're essentially losing money on two fronts, so I would be inclined to think you're not the best an understanding/managing money.

I often use my credit card for non-essential things that I want to pay back over a few months rather than pay for out of that months wages. i.e. I bought a new tv a while back and my plan was to allocate x amount per month over 3 or 4 months to pay for it which would not effect how much I was putting into savings etc. I usually clear any day to day spending on it every month but if I make a big purchase I prefer to treat it as a short term loan and pay it back over a period of time that doesn't impact on my normal monthly spending and saving.

PhoenixParker

Pay the credit cards off with your next pay check, then put up to E200 of your next months expenses on the card.
Pay that off when the bill comes (will be after your next pay check) and put up to E100 of your next months expenses on the card.

That way you're not touching your savings but you're clearing your credit card every month.

SarahMollie

Asa Damp Maid wrote: »

I often use my credit card for non-essential things that I want to pay back over a few months rather than pay for out of that months wages. i.e. I bought a new tv a while back and my plan was to allocate x amount per month over 3 or 4 months to pay for it which would not effect how much I was putting into savings etc. I usually clear any day to day spending on it every month but if I make a big purchase I prefer to treat it as a short term loan and pay it back over a period of time that doesn't impact on my normal monthly spending and saving.

Fine in theory if you'redoing so with your eyes open, but are you always conscious of how much interest you're paying using this approach? Credit Card interest can often be 20%+. For bigger things you might be better taking out a small loan, perhaps credit union? You can borrow at much lower rates and it also encourages saving with them as you need to do so to apply for a loan.

Personally, I prefer to maximize the money thats in my pocket and give as little as possible to Visa, Mastercard et al.

SarahMollie

SarahMollie wrote: »

Fine in theory if you'redoing so with your eyes open, but are you always conscious of how much interest you're paying using this approach? Credit Card interest can often be 20%+. For bigger things you might be better taking out a small loan, perhaps credit union? You can borrow at much lower rates and it also encourages saving with them as you need to do so to apply for a loan.

Personally, I prefer to maximize the money thats in my pocket and give as little as possible to Visa, Mastercard et al.

That a lot of hassle for the sake of a few euro, messing around getting loans etc for something that gets paid off so quickly and often these things are impulse buys anyway.

I don't see why the bank would have a problem with a credit card balance that fluctuates between cleared and a few hundred euro when you could easily clear it if you wish but instead are saving money.

Butters1979

The bank will look at all the factors in deciding if and how much of a mortgage to give you. Including regular saving, amount saved, current debt (including CC), debt repayment history, wages, employment type, job industry type, length of employment, first time buyer, age, marital status, kids, etc. etc.

I'm sure everybody knows this but my point is banks look at the whole picture, it's not just:
Credit card debt? That's a no.
Touched your savings? That's a no.
If you have the ability to repay the mortgage I doubt a bank would consider €600 either credit card debt or taken from savings as a major problem although it will technically work against you as they way up all the pro's and cons.

As others have said, having credit card debt when you have savings is just wasting money. You're better off paying of the CC and then rebuilding your savings. Have you considered a short term loan from a family member for the mortgage application period?

lcwill

Mohamed Itchy Mailman wrote: »

That a lot of hassle for the sake of a few euro, messing around getting loans etc for something that gets paid off so quickly and often these things are impulse buys anyway.

I don't see why the bank would have a problem with a credit card balance that fluctuates between cleared and a few hundred euro when you could easily clear it if you wish but instead are saving money.

Impulse buying TVs?


Nox001: "Can I have a mortgage please?"

Bank manager: "Computer says no"

staples7

Just my 2 cents -

My mortgage application was submitted this morning - After reading this thread I contacted my AIB mortgage advisor asking would it be best clear my cc (About 600 owing). She said there would be no need.

Fingers crossed!

SarahMollie

Asa Damp Maid wrote: »

That a lot of hassle for the sake of a few euro, messing around getting loans etc for something that gets paid off so quickly and often these things are impulse buys anyway.

I don't see why the bank would have a problem with a credit card balance that fluctuates between cleared and a few hundred euro when you could easily clear it if you wish but instead are saving money.

As I said, grand its your money and if you want to pay your CC provider for the privilege of spending willynilly and then paying it back over time at whatever %interest, thats your choice.

But in the context of the OPs question, ie a Bank assessing finances for the purposes of a mortgage application, it wouldn't be a wise course of action.

SarahMollie

staples7 wrote: »

Just my 2 cents -

My mortgage application was submitted this morning - After reading this thread I contacted my AIB mortgage advisor asking would it be best clear my cc (About 600 owing). She said there would be no need.

Fingers crossed!

Quick question - is that just your balance ie you're not yet due to repay it (i would always have some spending on my CC) or is it money that you've deferred paying over a number of months?

If its day to day spending and you're clearing it on time, thats fine. No one is suggesting that you need a zero balance on your CC in order to apply for a mortgage.

Its just paying interest on a CC whilst having money sitting in savings, is basically just giving money away, so this may not be viewed favorably.

However as you said, I don't think anyone should be losing sleep over €600!

loveisdivine

I take on board the advice about how to use credit cards. We will definitely be using them more wisely in the future, if we need to use them at all.

I'm hoping the fact that we save more than we need too each month and that we have at least a 20% deposit when we technically only need 10% as first time buyers, will outweigh the negative

SarahMollie

loveisdivine wrote: »

I take on board the advice about how to use credit cards. We will definitely be using them more wisely in the future, if we need to use them at all.

I'm hoping the fact that we save more than we need too each month and that we have at least a 20% deposit when we technically only need 10% as first time buyers, will outweigh the negative

Sounds like you're generally in good shape, I wouldnt let this worry you. If its made you aware of how credit cards really work then its a worthwhile exercise!

Let our old friend Nox keep paying them interest if thats what he wants to do to fund his impulse buying - and good luck with your application!

Its a tough process but worth it in the end

lcwill

lcwill wrote: »

Impulse buying TVs?


Nox001: "Can I have a mortgage please?"

Bank manager: "Computer says no"

Yeah because the bank would know its an impulse buy or care when I can easily afford it. Its also a rare occurrence I buy something like that, once a year or less. My card is often cleared and when I do pay a bit of interest its around 2 euro for the month.

staples7

SarahMollie wrote: »

Quick question - is that just your balance ie you're not yet due to repay it (i would always have some spending on my CC) or is it money that you've deferred paying over a number of months?

If its day to day spending and you're clearing it on time, thats fine. No one is suggesting that you need a zero balance on your CC in order to apply for a mortgage.

Its just paying interest on a CC whilst having money sitting in savings, is basically just giving money away, so this may not be viewed favorably.

However as you said, I don't think anyone should be losing sleep over €600!

I always pay more than the monthly amount due, Its just more of habit than anything else to have a a few hundred on the cc. Silly I know.

SarahMollie

staples7 wrote: »

I always pay more than the monthly amount due, Its just more of habit than anything else to have a a few hundred on the cc. Silly I know.

You said it

Probably best to just try get out of that habit if you can, just to save yourself a few €€€.

wench

staples7 wrote: »

I always pay more than the monthly amount due, Its just more of habit than anything else to have a a few hundred on the cc. Silly I know.

Definitely a habit worth breaking.
When you don't pay in full you lose the benefit of interest free days, and pay interest on all purchases from the day they were made.

Butters1979

loveisdivine wrote: »

I take on board the advice about how to use credit cards. We will definitely be using them more wisely in the future, if we need to use them at all.

I'm hoping the fact that we save more than we need too each month and that we have at least a 20% deposit when we technically only need 10% as first time buyers, will outweigh the negative

Absolutely. The bank will be much more interested in your repayment affordability and how much of a deposit you have (as this means they have less money tied up in a house than it could be sold for if something goes wrong). €600 is not enough for a blanket no.

Remember it's all about the banks risk, you're not going cap in hand, they're set to make almost a euro off every euro you borrow. If they see you as low risk, they'll be happy to take your money.

Santy2015

I was told having some kind of balance on a credit card is good, but saying that I pay mine off in full every month.

gaius c

Don't you have a direct debit set up on the credit cards?

SarahMollie

Santy2015 wrote: »

I was told having some kind of balance on a credit card is good, but saying that I pay mine off in full every month.

Yeah having a balance which you pay off every month is ideal. Shows you can handle having the money available but not get into trouble with it. Its when you're carrying the balance over into the next payment period and beyond and paying for the privilege, then its just costing you money.

gaius c

gaius c wrote: »

Don't you have a direct debit set up on the credit cards?

I'm sure like most people its set to the minimum payment and additional transfers are done manually. Could land your current account in bother if it suddenly got emptied paying off a credit card in full!!

SarahMollie

Asa Damp Maid wrote: »

I'm sure like most people its set to the minimum payment and additional transfers are done manually. Could land your current account in bother if it suddenly got emptied paying off a credit card in full!!

gaius c wrote: »

Don't you have a direct debit set up on the credit cards?

I have mine set up to pay in full, but apparently lots of people don't do this. I always leave a bit of money in my current ac so I won't get any shocks.

SarahMollie

SarahMollie wrote: »

I have mine set up to pay in full, but apparently lots of people don't do this. I always leave a bit of money in my current ac so I won't get any shocks.

You have no control then though, what if you make a big purchase on the card and then suddenly you have a direct debit which will be trying to empty your current account. Even more so if you use your card for work, you could have say an extra 1k euro on your card from a trip and not have gotten back the expenses yet so suddenly your direct debit could be way more than what's in your account. I also keep my current account as low as possible, card fraud is too common now so I use my credit card for almost all card transactions and on pay day transfer everything that's in my account from the previous month into savings. I got done for nearly a 1000 euro in fraud a while back and only reason they didn't get more was I keep a lowish balance in my account (I got the money back of course but I dont like giving free money to fraudsters).

I much rather having full control, I do the same for bills, rent etc I rather manually paying things so I keep full control over everything.

SarahMollie

Asa Damp Maid wrote: »

You have no control then though, what if you make a big purchase on the card and then suddenly you have a direct debit which will be trying to empty your current account. Even more so if you use your card for work, you could have say an extra 1k euro on your card from a trip and not have gotten back the expenses yet so suddenly your direct debit could be way more than what's in your account. I also keep my current account as low as possible, card fraud is too common now so I use my credit card for almost all card transactions and on pay day transfer everything that's in my account from the previous month into savings. I got done for nearly a 1000 euro in fraud a while back and only reason they didn't get more was I keep a lowish balance in my account (I got the money back of course but I dont like giving free money to fraudsters).

I much rather having full control, I do the same for bills, rent etc I rather manually paying things so I keep full control over everything.

The limit on my CC is not enough to empty my current account.
I have a corporate credit card for anything to do with work.

Anything bigger than that, like a car or something, I'd likely just be making a withdrawal from my savings for anyhow.

The only loan I have (or have ever had) is my mortgage so that keeps it simple. I live within my means, for me a credit card is just a convenience, but I won't spend unless I have the money to cover it.

Gumbo

You have 38k in savings.
You owe €600 to a CC and are considering paying it off over a couple of months.

Just pay it off now. Reduce your savings this month to pay the CC and get rid of it.

It will make no difference to the mortgage application.
We went through the process in 2015 and the biggest problem with CC is the limit. They had a heartbattack when they found out we had a 25k limit on our cards between us!

SarahMollie

SarahMollie wrote: »

The limit on my CC is not enough to empty my current account.

Mine actually has a very low limit also, too low in fact I need to get it increased as its awkward for work related stuff.

Anyway back on topic, for the op I think it makes very little difference but if they feel that it could effect them just pay it off by saving a little less for one month. There was another good suggestion and that was pay it off and then use the card for day to day stuff. This way the balance gets cleared and interest wont be paid but savings aren't reduced. It will take a couple of cycles of this to actually clear for real but this process means the balance is actually cleared from month to month.

gaius c

Asa Damp Maid wrote: »

You have no control then though, what if you make a big purchase on the card and then suddenly you have a direct debit which will be trying to empty your current account. Even more so if you use your card for work, you could have say an extra 1k euro on your card from a trip and not have gotten back the expenses yet so suddenly your direct debit could be way more than what's in your account. I also keep my current account as low as possible, card fraud is too common now so I use my credit card for almost all card transactions and on pay day transfer everything that's in my account from the previous month into savings. I got done for nearly a 1000 euro in fraud a while back and only reason they didn't get more was I keep a lowish balance in my account (I got the money back of course but I dont like giving free money to fraudsters).

I much rather having full control, I do the same for bills, rent etc I rather manually paying things so I keep full control over everything.

That's a fair point actually. Could you not get advances on expenses? That's what I did when I was in the US for 3 months.

When it happens to me, I just transfer from savings into the current account a day or two before the DD is due.

SarahMollie

gaius c wrote: »

That's a fair point actually. Could you not get advances on expenses? That's what I did when I was in the US for 3 months.

When it happens to me, I just transfer from savings into the current account a day or two before the DD is due.

Another thing I do is set up my direct debit for the last possible day, therefore I've anything between 8-4 weeks (depending on when in the month I'm spending) before my payment is due.

This gives plenty of time to reorganise finances behind the scenes if needs be.

gaius c

gaius c wrote: »

That's a fair point actually. Could you not get advances on expenses?

You can but more often than not its more hassle than its worth, especially if you don't use all the advance it has to be paid back by cheque or bank draft (at your own cost) etc and hassle of going to the bank to organise etc.

Its easier to just pay and claim back. its not as bad since we don't have to pay for flights and hotels ourselves and claim them, this is done for us now.

gaius c

I don't do the travel thing as much anymore but I know the regular folks asked for and got company credit cards.
As long as you don't use them for personal use (too much paperwork with accounts), they work very well.

gaius c

gaius c wrote: »

I don't do the travel thing as much anymore but I know the regular folks asked for and got company credit cards.
As long as you don't use them for personal use (too much paperwork with accounts), they work very well.

One of the joys of working in a public service job, no chance you will ever see a company credit card.

athtrasna

Can we ease off talk on how to use a credit card please. A specific question was asked by the Op. Thanks

Villa05

If I were a bank and you were giving me lots of money which I pay little or no interest on while I give you money and you pay circa 20% interest I'd be laughing all the way to the bank.

Seriously it's a no brainer, never, ever have credit card debt when you have 30k + sitting around.