Credit card debts mean I'll never get a mortgage

HousesThis client is young and on a decent salary, yet credit card debts mean he's given up on ever owning his home.

For most people owning their own home is a realisable ambition. However we spoke to a client the other day who, despite being on a decent salary and still at a fairly young age, had given up on the idea of ever owning a home.
This wasn't to do with property prices generally or even property prices specific to the area he lived in. He'd given up the dream of homeownership because of the problems he'd faced with credit cards.

12 years in the doghouse
This 30-something client had used several credit cards during his twenties. There was no problem repaying them at first, but as he admitted himself, he'd lived beyond his means for a while.

Despite his level of debt he'd been able to maintain the minimum payments until he suffered an income shock that meant he could no longer afford to maintain his contractual commitments.

Debt recovery
The client contacted us to look for help in managing his debt. We assisted by looking at his circumstances and putting him into a six-year debt management plan (DMP). He dutifully repaid his creditors, although at times it may have been tough.

The creditors - in the main - played ball and reduced interest and charges on his accounts based on the paperwork that we put to them and the offer of repayment the client made.

In line with the usual process, most of the creditors marked a default on the client's credit file when he entered the DMP (creditors do this when a contractual arrangement has been broken - a default on your credit file will limit the availability of credit for six years).

Double default
After six years the defaults had fallen off the client's credit file and he was on the last eight payments on his DMP. The client had worked hard to get debt free, but he didn't expect what happened next.

The one creditor who hadn't defaulted him at the start of the plan decided to default him now, despite him nearly repaying the debt in full. He could have challenged this through the Financial Ombudsman, but creditors are fully within their rights to default a client when they please, once the original agreement has been broken.

The result of this default means that the client's credit file now holds a default notice for a further six years.

House plans in tatters
The client had managed to repay the vast majority of his debt and had learned to budget wisely and live without credit. He was looking forward to being able to save and build up a deposit towards a reasonable property.

The blow of the late default notice and the realisation that by the time the default clears from his credit file the client will be in his late thirties has led him to decide to give up on his dream of homeownership.

The further six-year default, followed by the time spent building a reasonable credit history thereafter, combined with saving for a house deposit, means that he's accepted that realistically he would probably be renting a property for the rest of his life.

All this due to spending on credit cards in his twenties.

Debt help
These are fairly unique circumstances, and we don't want to scare anyone unduly – this isn't something that would affect the vast majority of people looking to buy their first home.

The client may be able to purchase a property in future but we're sure he'll be more informed about what can happen if things don't go to plan.

If you're worried about problem debt or just concerned with the level of unsecured credit that you currently owe it's worth using our free online counselling service Debt Remedy. The effects of past credit can sometimes be felt long into the future.

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