Becky asks:

I spent my early 20s getting myself into a financial mess. However, I have spent the last 18 months paying off the existing debts and in two months I will become debt free except for a car I have on finance (I have been paying off £550 a month). I also have two credit cards which I use for petrol and pay off each month. I have these for the purpose of improving my credit rating and they are both cards that are offered to people with poor credit history.

I am in the process of saving for a deposit for a mortgage. I have saved £1,000 and have arranged that the money that I had previously been using to pay off my debts go directly to a stocks and shares ISA. My query is, with all this planning am I realistically going to be able to get a mortgage bearing in mind my poor credit history? I am 30 and work as a nurse for the NHS.

You are doing all the right things to improve your credit status and it may well be that by the time you've saved a deposit your credit status will have improved sufficiently for you to obtain a mortgage. Having said that, lenders are much stricter now than before the credit crunch, especially if you only have a small deposit.

When you have had a clean credit history for a couple of years or so, depending on how bad your previous credit history was, you should be able to get a mortgage. However, it will be very important to choose the right lender, which is where a good independent broker will be able to guide you.

Continue to use the credit cards and pay them off in full each month, preferably by direct debit. A few months before you are ready to look for a property it would be a good idea to apply for a new 'normal' credit card as this is a useful test of whether your credit status has improved. When you do that you may as well choose a card that gives you cashback, points or Airmiles, depending on your preference. Providing you pay the balance off in full each month the interest rate is irrelevant.

If you go for most types of property you will need a deposit of at least 10% and funds to pay for other costs, but one alternative would be the government Homebuy scheme. Here you would only have to find 70% of the purchase price initially and it would be possible to get a mortgage for 95% of that 70% meaning that you would need a much smaller deposit. However, this scheme is only available on selected new build developments.

I would strongly recommend that in the new tax year you use a cash ISA to save for your deposit, not a stocks and shares ISA. Stocks and shares ISAs are designed for medium to long term investment and are not suitable for savings you are likely to need in the next two or three years. Although you won't earn much interest on your cash ISA the funds will be 100% safe, whereas with the stocks and shares ISA, if you need the cash for your deposit when the stock market is low you will probably lose out.

If stock markets rise you may make a profit, but a safety first approach for this type of saving is much more sensible. Other things which will help your credit score include making sure that you are on the electoral roll and keeping the same current account. The longer you have had your current account, lived at the same address and worked for the same employer the better your score (although beyond ten years there is little if any additional benefit).

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