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Tackling your debts

Did you know your mobile phone could affect your chances of getting a mortgage?

Posted 02 December 2014 by Shelley Bowers

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If you miss your mobile phone bill or pay it late one month, this could show up on your credit report and make borrowing difficult in the future.

Did you know that missing just one monthly payment towards your mobile phone bill could scupper your chances of getting a mortgage in the future? Yes, that’s right, one missing payment could see you rejected for a mortgage and floundering around when it comes to setting up home in your own place. 

It sounds crazy, we know, but mobile phones contracts are a type of unsecured credit, the same as your credit card or personal loan. And if you miss a payment or pay late, it will have consequences. This is because your mobile provider will report to the credit reference agencies that you’ve not made the payment as you should have done, and this will show on your credit history.

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Why does missing a payment matter so much?  

So, we’ve established that missing bill payments is an undesirable thing to do. But what happens if you do?  As we said before, if you miss a payment one month or don’t pay the full amount due, your mobile provider (or other creditors) will advise credit reference agencies that you’ve not made the payment that you should have done.  It will be listed as ‘one month late’, or something similar. If you then miss a second month’s payment, this will be listed as ‘two months late’ and so on.

If this situation carries on, and you don’t contact your creditor to tell them what’s happening, the late payments will turn into defaults. And the defaults will remain visible on your credit file for at least six years. But, if you want to apply for a mortgage, the damage could already be done at the late payment stage, before the defaults have even occurred.

When you apply for a mortgage, one of the first things any provider will do is check your credit file. They do this because they use it, along with their own selection criteria, to decide if they want to lend to you or not. If they see that you have a late payment on your file, it will set alarm bells ringing.  They’re going to think that you’re not able to keep control of your finances, and that means they’ll be nervous about lending to you. So, one missed payment could mean that your application for a mortgage will be rejected.      

When you’re thinking about applying for a mortgage, what you need is a blemish free credit report. So, you need to make sure you make all your payments on time and in full. If you think you won’t be able to make the payment on time, call your creditor and ask them if it’s possible to move the payment to another date when you can pay. If your lender is willing to do this, you won’t have a late payment or default noted on your file. You don’t want something as simple as a missed mobile bill to be costing you your chance of a home of your own. 

What payment could you miss if you’re short of money? 

This is a tricky question to answer. Really, you should never be in this situation, but sometimes things happen, a boiler breaks down for example, leaving you in a financially vulnerable position. If this happens, and you’re not able to make all your monthly payments, you should try to make sure that all your secured debt is paid first. Why? Because this often has some of the most serious consequences if you don’t pay it – such as losing your home or your car.

But, if the hitch in cash flow is only for one or two months, there’s no need to panic too much, as your creditor won’t list your missed payments as a default until at least between three and six have been missed. All you’d need to do is call your provider and tell them that you may have a temporary cash flow issue. You’ll usually find that they are very accommodating if you let them know there might be a problem before it happens.

Other bills you should prioritise are things like child maintenance, council tax and court fines – again all things that can land you in quite serious trouble if you don’t pay. Once those are all paid, and you have money for your essential costs such as food and travel, you can now think about paying your unsecured creditors.

Missed, late or part payed unsecured debts, like your credit card, store card or personal loan will also result a note on your credit file. And, if you miss several months and don’t communicate with your creditor, they’ll also start a recovery process and mark your file as defaulted.

So as you can see, it’s not ideal to miss any payments, but out of the two, missing unsecured payments is the lesser evil. 

If you find that not having enough to pay your bills each month is a regular occurrence, it might be time to start thinking about debt solutions. You can chat through your current situation and how we might be able to help you with one of our trained advisors by choosing one of the ‘contact us’ options on the left.  

 

 

 

 

 

by Shelley Bowers

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To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.