‘Does credit card balance help my rating?’

Chief executive of the Credit Union Development Association

I’ VE heard that keeping a balance on my credit card every month helps my credit rating. Is that the case or is it better to pay off my credit card in full every month? Andrew, Dublin 7 This financial falsehood has been doing the rounds for some time now but in short, no, you do not need to keep a balance on your credit card to get a better credit rating. You need to remember that you are paying hefty interest on any outstanding balance on these cards, so if you can clear it every month then you should. Plus, if you make a credit application for a mortgage a lender will look favourably on the fact that you did clear the balance when you could afford it.

The confusion around this might lie in the fact that some people pay off their credit card with every transaction made — a type of pay-as-you-go approach which does not do their credit rating any favours. For example, if you use your credit card to do some online shopping, then 24 hours later you use your personal fund to pay off your card so your balance immediately goes to zero.

Part of developing a strong score is to be able to demonstrate your ability to repay outstanding balances but if your statements constantly just show zero balance then the credit bureau can’t see your proven ability to repay.

Should we rent or buy our home?

WE’ VE been renting our house from the local council for a number of years now and recently received a letter from them saying that we could buy the house for a lot less than it’s worth. It sounds like something that we should consider. While we have always been prompt with our rent we’re a little worried that we’ll find it hard to get the money as we don’t have that much saved — how should we go about it? Deirdre, Leixlip, Co Kildare I am assuming you are eligible to buy your home under the new incremental tenant purchase scheme, which was introduced in 2015. Eligible participants in this scheme can, depending on income, get discounts of anywhere between 40pc and 60pc off the price of the property, so this is certainly an opportunity you should look into.

In your decision-making process, you need to consider affordability and credit accessibility. Can you source the funds to purchase your home and can you afford the subsequent monthly repayments?

You must also remember that the way this scheme works is that an incremental charge, equivalent to the discount, will be placed on the house. During an agreed term this charge will reduce to nil in annual increments of 2pc of the total value of the house. If you sell the house within this specified period, you will have to pay the outstanding incremental charge on the house to the local authority.

There are several routes to securing a mortgage and which one is best for you will depend on your particular situation. You should approach the key lending institutions to make an informed decision. Banks aren’t always open to this type of mortgage but there are other options. You may be eligible for a local authority mortgage, for example — your local authority will be able to advise you on this.

Many credit unions throughout the country also lend for tenant purchase schemes. Unlike banks, credit unions aren’t required to deliver profits for shareholders, so their lending products are priced to meet the needs of members.

Poor credit record for mortgage

MY fiancé and I have recently returned from working abroad for the last five years to settle in Co Cork. We’ve got a pretty big deposit saved and have new jobs but are a little worried that we’ll struggle to get a mortgage with our missing years of credit history in Ireland. I had student loan with the credit union in the past but we’ve not much else to demonstrate our ability to repay the mortgage — should we apply to a bank or credit union as I hear the latter are now in the market? Brian, Clonakilty, Co Cork Getting a mortgage is a huge financial undertaking and not one you should enter into lightly. So my advice would be to assess all your options before making any decisions. Approach a few lenders and you’ll know who is likely to lend to you and who will give you the best rate over the life of the loan.

From the brief information provided in your question, you both seem like very suitable mortgage candidates, however, you are correct in thinking that your lack of credit history might work against you.

But every situation is different so don’t get disheartened just yet. It may be the case that a lender will ask you to wait six months to allow you to demonstrate ability to repay a mortgage — possibly by showing rental payments, etc. Because we don’t have all the relevant details it’s difficult to say with any certainty whether you would get mortgage approval straight away, but it’s worth trying.

Preparation is paramount when applying for a mortgage — ensure you have all the necessary documentation.

Also, take a look at your financial transactions over the last six to 12 months — even if you were living out of the country, lenders will still ask to see current account statements. There are a number of red flags that lenders will take into account when reviewing your personal spending habits, such as online gambling and late-night transactions.

Where should I put €10,000?

I’VE just turned 23 and recently inherited €10,000 from my grandmother. I have been looking at the saving rates offered by banks, An Post and my local credit union. None of them inspire me — are there other factors that I should consider before deciding where to put my money? Joanne, Co Limerick Yes, you’re correct in believing that the return on deposits is at an all-time low. Unfortunately, there’s not much you can do about that. Most banks effectively offer token interest, between 0.3pc, with credit unions averaging about 0.5pc, so you’re definitely not going to make a fortune on deposit.

But return on investment isn’t the only consideration. The safety of your funds is also very important — both banks and Credit Unions are covered by the Deposit Guarantee Scheme. Access to future credit might also have some bearing on your decision.

In the past, having an exclusive relationship with one financial institution carried some weight — if you did all your savings and borrowings with the same bank branch, this was generally reciprocated by the local manager. So, if your savings, current account and credit cards were all there and you needed a loan, it was often just case of picking up the phone to the manager to get immediate approval.

During the recession, much of the authority to approve a loan was centralised and taken away from the local branch, with each loan application being assessed on just its own merits. Credit unions still operate to that personal packaged relationship, so if you save with them, there is a far better chance that they will approve your loan.