1. They charge excessive rates of interest.
   The interest on most store cards is often double that of ordinary credit cards.
2. Hiding the facts.
   It often isn’t very clear when you sign up in store as to what the APR or interest rate is. One thing’s for sure, it will be high!
3. Pushy Sales Methods.
   Shop staff are usually incentivised by commissions for signing people up and as a result they can be very persistent.
4. Untrained Sales Staff.
   They are often promoted by untrained shop staff, who have little idea of the impact and associated dangers of such high interest rates.
5. Limited Offers.
   The common ‘carrot’ to sign up, is a 10% introductory discount, after which you don’t get any further offers.
6. They’re targeted at the young.
   This is the first piece of credit many young people get. They’re an easy target and often spend on these cards without understanding how to manage them, racking up expensive, ill-afforded debts.
7. They charge us more and get our business.
   With these cards the stores guarantee that we spend on them in their shops. Yet to do this they charge us more even than a credit card. So much for loyalty!
8. The OFT is concerned about them.
   The Office of Fair Trading is concerned about the sales tactics used here and advise you to take the forms away and read the small print carefully. If you do this, stores generally then refuse to give you the introductory offers!
9. Christmas is coming.
   This makes it more important than ever to try to avoid using store cards wherever possible. This is because of the tendency to overspend when you enter the store for which you have a credit card .The reality of spending too much on store cards sinks in when you get your statement in January. Not such a Happy New Year!
10. They charge excessive rates of interest.
    OK, this one repeats the first reason, but that’s because it’s worth repeating again and again and again.

ShareThis

1. Go through your last 3 months current account bank statements. Create a list for ‘Income’ (money coming into your current account) and a column for ‘Outgoings’ (money leaving your current account). For each month this shows how your monthly budget (income versus outgoings) is looking.
2. Highlight any financial products or relationships in your Outgoings column. This could include either loan, mortgage or credit card payments or regular savings transfers. Spend a little time, finding out more about and categorising each Outgoing.
3. Focussing firstly on the Outgoings you have identified as being ‘debts’, ask the following questions; what type of debt is it (e.g. Overdraft, store card, or mortgage)? What is the total amount outstanding? How long will these payments continue? What APR is being paid by you? Try and identify the most expensive form of debt.
4. Focus then on the regular Outgoings you have highlighted as being savings or investments and ensure you understand their key features. Are you earning some capital growth from these activities? Do you understand the risks of the investment? How quickly can you get your money out? Are you paying any tax on these activities?  Try and identify the least effective saving.
5. Now it is time to make your plan. You will need to maintain at least the minimum repayment on each of your debts, but can you find a way to accelerate the capital repayment? Even relatively modest increases in the monthly capital repaid to the lender, can have a significant impact on the total amount to be paid back overall. It is nearly always better to prioritise your debts, focussing on the debts that carry the highest APR.
6. Execute your plan. Having decided which debts to prioritise and how that will improve your wealth, you now need to make the arrangements. Contact your lender(s) and ask them to change the Direct Debit or standing order mandates. If you have decided on this course of action, transfer your least effective savings into your most expensive borrowing. Having all of the information gathered during steps 1 – 5 will help you to understand which savings to use and which debt(s) to consolidate.
7. Review regularly. Each month review your budget at the same time as checking your bank statements. Try to set yourself short achievable goals and have the commitment to see them through.

We’d love to hear your views on our approach and hopefully hear back from those who have implemented their own plan.

ShareThis

Often it’s hard to recognise if you have a debt problem. Once you have, it can feel like the end of the world and panic measures set in so it’s beneficial to spot the signs early on. For example, can you only afford to make minimum payments on your credit or store card repayments? Do you regularly struggle to pay for your basic living costs (eg rent, mortgage, council tax, utilities)? Does your list of income and expenditure shows that you have more going out than coming in?

If you recognise these signs, the obvious starting point is can you increase your income or reduce your spending?

On the income side, check that you are claiming your full entitlement to social security benefits and tax credits and that your tax code is correct. Also, consider whether you can increase your income through working additional hours or taking a part time job. Have a look in your attic and cupboards, you may be surprised with what’s there giving you the opportunity to sell unwanted items for extra cash.

On the expenditure side, look to see how to save on your mortgage, insurance, and utility costs by visiting some comparison sites on the internet. Similarly think carefully if you can you reduce your regular spending in areas such as housekeeping, clothing, and other personal spending. Question if they are all necessary.

After recognising that you do have a debt problem, one solution could be debt consolidation. This involves borrowing more money to repay existing debts with the payments on the new loan being less than you currently pay on your existing debts.

If you fully understand the implications of what you are doing and are able to access new borrowing at a low rate of interest, debt consolidation can be an effective approach to a debt problem. Alongside this you need to aim to bring your budget back under control, pay back any future credit card spending in full each month without fail and start saving for future unexpected or irregular costs.

However, be very careful, consolidating often lead to worsening debt and sometimes even potential homelessness. The reduction in monthly payments often comes at a heavy price. Paying back your debt through a new loan over a longer period may sound good but because of a reduced monthly payment, seeing how much you will have to pay back in total could be much more than you expected. Also, if you are a homeowner your consolidation loan is often secured against your house which means if you fall behind on your loan payments you risk losing your home!

Debt consolidation is a growing sector and companies vary significantly in their approach, so make sure that you do your homework and are dealing with a reputable organisation that explain all of the options open to you.

Finally, consider using some simple personal finance software that will keep the position with your personal finances up to date and should highlight debt issues early. The earlier the problem is identified the easier it will be to control.

ShareThis

ShareThis

If you’ve had trouble getting credit, it makes excellent sense to find out what information lenders are seeing. Mainly because by doing so you can correct any mistakes or anything you think isn’t an accurate reflection of your overall financial situation. By doing this, you’ll improve your credit score – the thing on which financial companies base their decisions on whether to lend you money.

You do this by adding a Notice of Correction – a 200-word statement  – to any entry, explaining it. For example, if you missed a few payments on your credit card a couple of months back due to illness, ordinarily the bigger story doesn’t appear – just the cold, hard facts that contribute to your bad record. So, an explanation of why payments were missed may influence a lender’s decision to offer you money.

With fraud and identity theft on the rise, it’s possible that someone else created a credit problem for you somewhere along the line. If that’s the case, add a note to your file. Are you registered on the electoral roll? If not, get on it. It’s used to check that you are who you say you are. So, not being on it, often automatically means you’re rejected for credit. Once are you registered, add a Notice of Correction saying so.

Understanding your credit score:

The higher it is, the better your chances of being lent money. Not what you’d call rocket science!

To remove some of the mystery surrounding credit scoring, Equifax have revealed their ‘credit scoring test’ system. It’s worth having a look at it even if you’re looking at your report through another company – theirs will be similar.

Excellent – Your score shows you’d be a strong candiate for credit        90 – 100

Good – You have a good chance of being granted credit                            70 – 89

Fair – You may have some problems getting credit                                     50 – 69

Poor – You may have considerable difficulties getting credit                       0 – 49

If you score ‘fair’ or ‘poor’, there are things you can do to move up to ‘good’ or ‘excellent’.

How to improve your credit score:

It doesn’t happen overnight. It takes at least six months – probably more like a year – to get a better credit record, particularly if you’ve been bankrupt in the last few years.

The first thing to do is correct any mistakes on your report, as we talk about above.

Got accounts you don’t need? Close them. Financial companies are paying attention to the total amount of credit available to you. So while you may not be using them, dormant accounts could still be affecting your credit score.

Also, make sure you are on the electoral roll. Weirdly, not being on that can count against you for your credit rating. Just ring up your local council to get yourself put on it.

If you think you might have a low credit score, but you want to know how much a company would charge for a loan, ask them to do a ‘quotation search’ not a ‘credit search’. This means they will give you an idea of the interest rate they would charge but they won’t do a full credit check (and then potentially refuse you). Every time a company does a credit check on you it is recorded – particularly if they refuse you credit. This harms your credit rating.

That done, the main way to improve a credit record is by borrowing money and paying it back religiously, on time, every month. Lenders are looking for proof that you’re capable of repaying borrowed money. “But how can I borrow if no one will lend to me?!” you wail. You do it by borrowing from one of the very expensive, ’sub-prime’ lenders and making sure you pay back before the interest period kicks in. In other words, take out a credit card with a very high APR (Annual Percentage Rate), use it a small amount every month and then pay the bill every month during the interest-free period. There are a few companies that offer credit cards to people with poor credit records.

• If your credit rating is poor but not terrible (i.e. you don’t have CCJs against your name and you have only missed a payment or two in the last year) then you could try the Barclaycard Initial card which is specially for people who want to strengthen their credit rating or rebuild their credit history. The interest rate is high – 27.9% typical APR – so only get this card if you know you will pay it off every month and you are serious about rebuilding your record.
• Barclaycard also does what it calls its Creditbuilder card which is good for people who don’t have a credit record because they have only just come to this country or they have simply never borrowed. You have a starting credit limit of £100, £250 or £450 and the typical APR is 29.9%. If you use it responsibly for a few months then you can get upgraded to one of their cards with a better interest rate and move on up from there.

• Vanquis (part of Provident Financial which specialises in the ’sub-prime’ market) does a Vanquis Visa card with a whopping 39.9% interest. It is specifically aimed at people with a bad credit history who can’t get other cards. It has a 25-day interest-free period from receiving the statement which gives you time to pay it off. DO NOT USE IT UNLESS YOU KNOW YOU CAN PAY IT OFF. You think things are bad now? Just see how you feel if you use this, can’t pay it all back and then get the massive interest slapped on every month.

• CapitalOne also does a very high interest credit card (34.9%) which it will offer to people with poor credit histories (or no credit history which can also be a problem if you want to borrow). Again, do not even think about using this card if you are struggling to pay your bills now.

If you’ve have been made bankrupt in the last few years or you have started an IVA scheme, ring up the above companies for a general quote before applying. It’s quite possible even they will reject in the early stages of an application.

• If they do reject you, what you can have is the KubeCard pre-paid credit card. Actually, pre-paid cards are a really good option for people who can’t get credit cards anyway , but this one is even better. When you use this card, and use it regularly for twelve months consecutively, you can actually build up your credit score (hence ‘Creditbuilder;!). It does charge a £4.95 fee each month, which is quite steep, but it may be worth it if your score is really low. Just load it up with some cash each month and then use it like you would use any other card. Just make sure that that £4.95 fee is paid every month for at least 12 months. They don’t do a credit check, though, which is a big plus if you have a poor score.

If you have the money, it would be worth subscribing to Creditexpert to see how your record is improving over the months – but only if you have the money. Otherwise you could apply for your basic credit report every few months to see the change as you go on.

After all that, though, a lender’s decision is at their discretion and you could still be refused credit. Nevertheless, following our advice will hold you in good credit stead.
How to get Credit Expert’s free online report

• Click on this link for Experian. It will take you to their home page where there’s a green  “30 Day Free Trial” box. Click on it, and you’ll be taken through to the registration page.

• Now follow these simple steps:

1. Complete the registration.
2. Make a note your details, including the credit file reference number.
3. Your PIN should arrive in the post in a few days.
4. Use the PIN to log in online and check your credit record.
5. Inform CreditExpert of any inaccuracies.
6. Cancel your membership (so you don’t forget or get charged anything) by phoning 0800 656 9000 and selecting Option 4. You can email but you’ll be quoting your bank details, so it’s best to speak to someone on the record.

ShareThis