The answer to this is not quite as simple as you would maybe think. I thought it would help to go through this in more detail to see whether it is worth satisfying the defaults/CCJs etc or if it would make more sense putting the money towards a bigger deposit.
Level of adverse
Firstly, I think we need to look at the amount of adverse you have. If you have one default for £200, there is a good chance you are going to be getting high street rates (assuming the default is over maybe 6 months old). In that case, I think it makes sense to satisfy the debt as its not a huge amount. It could help to tip the balance in your favour when it comes to a credit check.
If on the other hand you have 5 Defaults for £200 each, you are going to struggle to pass a credit score check with a high street lender. At that point it is probably worth keeping hold of the £1,000 and putting it towards your deposit.
The age of the adverse
I touched on this in the section above. If the adverse is 4 years old, it is going to have less of an impact than something that is 12 months old. So again, 4 year old adverse might fit on the high street and satisfying it might help to improve your chances. If it is 12 months old then it is unlikely to make enough of a difference to help you pass a credit check.
How long until you apply for a mortgage?
This is quite important as satisfying the adverse today will not update on your credit report for potentially a month or 2. Some lenders also are not going to look favourably on adverse satisfied a week or a month before a mortgage application. Ultimately it looks like you have satisfied it purely to help you get a mortgage. But that is not a cut and dry rule, so this is quite an important factor. However I would generally say if you are thinking of applying for a mortgage in less than a months time satisfying it today is not going to do much to help. It may not even be reflected on your credit report prior to applying.
Type of lender
We like to put mortgage lenders into 3 categories:
- High street – these lenders typically have set criteria but also credit score. They do not usually like a lot of adverse or recent adverse. But minor historic adverse can sometimes pass the credit score. Satisfying it can help you obtain the better end of the mortgage rates.
- Building societies – these are the sort of middle ground lenders. Typically they can accept adverse if over maybe 2 years old and it was all in the same period. In short if they can see there was a blip, they may accept an application. Building societies usually like to see the adverse being cleared at the earliest opportunity rather than just before an application.
- Specialist (or Adverse) lenders – these are the lenders who were set up to accept adverse. Satisfied, unsatisfied, recent or historic, large amounts or small they usually have the most products to try and find a solution. But they are also typically the most expensive.
Summary
It is not an exact science. I seem to say this a lot, but the devil is in the detail.
However in short, satisfying your adverse can help. But typically only where the adverse is minor and you are 50/50 on being accepted on the high street.
If your adverse is recent and/or heavy, then realistically satisfying the debts is not going to make a big enough difference. In this instance, I think it is more a case of time being the greatest healer.