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Applying For Credit – A Few Tips

Applying for credit isn't always what its cracked up to be. For many people with a poor credit history it's certainly not that simple.

With the British economy in the dire state it’s in many people are struggling to meet monthly payments. Unfortunately this can have severe consequences on personal debt as well as on the customer’s credit score.

Council tax bills and credit cards tend to be the most commonly missed payments – which will hardly come as a surprise to many. However, the likes of payday loan repayments are probably not too far down the list either.

So what can you do to ensure that your credit score is in tip top condition for the year ahead? Check out these top tips:

Pay off existing debt.

If you are looking at applying for a credit card, payday loan or other form of credit then it’s really important that you make sure you have repaid any existing debt you may have. Whether this is in the form of unpaid council tax bills, outstanding credit card balances or utility bills – it’s important to make sure your credit history has a clean bill of health.

Sign up to the Electoral Roll.

This might sound odd but did you know that signing up to the Electoral Roll is one of the best ways of improving your credit schore? A number of credit referencing companies actually check against the Electoral Roll to help fight identity fraud. This is why it’s essential that you make sure you’re signed-up to it.

Check what the credit reference firms have on file about you.

We see these adverts almost daily – especially since many of us spend so much time on the internet. However, it’s important to consider signing up to the likes of Equifax or Experian to keep a close check on your credit score. This not only gives you information on your credit history but it will also flag up any repayments you may have missed. It can also help to keep track of potentially fraudulent activity on any of your personal accounts – allowing you to remedy any issues that may arise relatively quickly.

Do you have a credit history?

If you are lacking a credit history then it can be difficult to obtain any form of credit… sound strange? Well it probably is, however, lenders are less likely to trust customers who have no history of borrowing money. This is largely because lending firms are unable to see how you behaved previously when it comes to repaying debt – as a result they will be unable to predict how you are likely to behave when it comes to repaying the loan they extend to you. This sounds incredibly unfair but there are loan and credit card companies out there who will lend – however you may be restricted to a low balance and you may start off paying a higher rate of interest to begin with. In spite of this it is worth considering as this will improve over time and as a result you will improve your credit history as a result.

Find out if a credit card is right for you with our quick guide to credit cards.

This is only a question you can answer – credit cards can give you the flexibility to make payments on demand – whether its an unexpected bill or some other expense. However, it’s worth bearing in mind that you will need to meet a minimum monthly payment to help keep your credit under control. The more you can afford to repay the better.

A credit card is essentially designed for short-term borrowing – like a payday loan, for example. The only real difference is the interest rate tends to be lower and you get a card to make payments whilst on the move or online.

If you’re looking for a larger amount over a longer period then you may be better off looking at a personal unsecured loan or secured loan.

Credit cards are more suitable for travel, booking hotels, paying bills or helping to meet monthly expenses when things are a bit tight. The last thing you want to do is blow all your credit on something major. Besides – not only will this mean that you have no spare credit but it could also mean you are unable to repay the balance and descend into credit card debt far quicker.

What About My Credit Score?

That’s a good question when you think about it. If you have a poor credit score you could help repair this with a credit card… there are credit card companies and banks who will give you one on the condition that you agree to make the mandatory monthly repayments.

However, if you are still in significant debt then the worst thing you could do is take out a credit card as you could descend further into debt the more you spend. In the end it is up to you… if you think you could manage a credit card then go-ahead – there are major benefits to having one.

Other than the ability to borrow small amounts on a credit card what are the other benefits to having one?

When you think about it a credit card is so much more than simply a means to borrow money to help pay for goods, services and bills. Some companies actually allow you to build up your airmiles and some will give you airmiles up-front.

Other credit cards come with different benefits – such as lower interest rates or a far larger starting balance. There are even some credit cards that will give you cashback when you shop at certain places or spend over a certain amount… you simply need to take a look around and find the best deal out there.

If a credit card doesn’t sound like your cup of tea check out this article on alternatives to credit cards.

Security firm urges caution over online credit card spending

People using credit cards have been cautioned over giving out personal information to the wrong sources whilst online.

Security expert with Norton (the anti-virus firm), Con Mallon, has warned that people who use social networking websites such as Facebook as the most at risk since they are more likely to give away personal details without knowing.

Mr Mallon commented:

“Be careful about what information you post online on social networks such as Facebook, don’t willingly give out banking or credit card details – particularly over the phone. Keep your passwords safe, and make sure your computer is up-to-date with the latest security software.”

In addition to this, the increasing use of online banking has also raised security concerns about personal details being exposed to credit card fraudsters. Consumers are being recommended to to check their balances on a regular basis to ensure they have not been hacked by cyber criminals.

Norton is recommending that consumers do not access their online bank account via unsecured wireless networks or public portals. The most recent Norton Cybercrime report has revealed that almost 60% of consumers in the UK have been affected by credit card fraud and identity theft.

Half Of Brits Fear Credit Card Fraud

A recent survey has revealed that almost 50% of Brits are concerned about becoming victims of credit card fraud, however, many are simply failing to take adequate precautions to protect themselves.

Of the people questioned, almost 50% claimed that they were worried about losing money as a consequence of having their credit card or debit card stolen or cloned.

Almost two thirds of the respondents suggested that they were more worried about being the victims of credit card fraud as a result of the difficult economic climate. A further 35% stated that they now had less money and they simply could not afford to lose what they do have.

One of the biggest concerns this report revealed was that almost 10% of respondents admitted to keeping their pin numbers with credit cards and debit cards, making it very easy for anyone to use the card should it be stolen or lost.

Risk Business Solutions Consultant at ACI Worldwide, Andy Morris, commented:

“When it comes to fraud, prevention is obviously better than a cure. Banks need to continue to inform consumers about how they can protect themselves against fraud.”

Credit Card Interest Rates Sky-Rocket

Recent research by the Moneyfacts group has revealed that the interest rate on credit cards have hit their highest peak since 1998 as banks and credit card lenders worry about debt defaults by customers.

The report shows that, on average, interest rates on credit cards sit at just under 19%, the highest rate in 13 years.

The group believes that the rate on credit cards have risen steadily since the begining of the recession in 2008, as a result of many lenders setting prices based on the risk that growing numbers of people were likely to default on debt as unemployment rose.

Michelle Slade, the group’s Personal Finance Analyst, commented:

“The UK continues to suffer from a high level of unemployment and providers are worried about the increased risk of customers not repaying their debts.”

Ms Slade went on to add that the “increased risk continues to be passed on to both new and existing credit card customers through higher interest rates.”

Moneyfacts added that, although 18.9% was an average interest rates, actual existing credit card customers were likely to have seen steeper interest hikes.

In spite of this there are still competitive credit card deals on offer for people looking to switch their provider. Consumers are urged to shop around for the best possible deal.

Homeowners Turn to Credit Cards to Re-Pay Mortgage

More and more people are turning to their credit cards to help pay their monthly mortgage rates or rent.

The report by housing charity, Shelter, has indicated that the number of consumers paying for rent and mortgages with credit cards have increased by around 50% in a year.

More than 2.5 million people have been forced to resort to borrowing money to keep a roof over their head over the last 12 months. The report also suggests that these figures are up from 4% when the same research was carried out back in November 2009.

The Shelter charity are concerned that this could lead to many families being pushed into spiralling debt, eviction or repossession, leading to homelessness.

The charity’s Chief Executive, Campbell Robb, commented:

“Using credit cards to pay the rent or mortgage is simply robbing Peter to pay Paul. With the average credit card interest rate now standing at over 16% it is the worst possible course of action.”

Mr Robb went on to add:

“Already someone faces the nightmare of losing their home every two minutes, and we would urge every single one of these people now relying on credit to keep their home to seek advice urgently.”

New Credit Card Rules Come Into Force

A number of new measures have been introduced to protect consumers when borrowing money through credit cards are set to come into force.

These credit changes have been agreed between the finance industry and the UK Government. They have been set to give credit card borrowers more control over their borrowing, and those at more risk of getting into financial difficulties will be given far more protection.

The key changes implemented are:

1 . Repayments made by credit card holders will be used to reduce their most expensive debt first. This will essentially end the current practice that ensures debt that is only earning low or zero interest is repaid before debt on which interest is charged at higher rates.

2. Borrowers will be given greater control over their credit limit, enabling them to opt-out of receiving credit limit increases. In addition to this they will also be able to reduce their limit at anytime.

3. When credit Card lenders who decide to increase interest rates borrowers will be given more time in which to opt to remain on their existing interest rate, but stop using their cards to make new purchases.

4. Minimum repayments for people who open new accounts will be set at a level that covers all interest, fees and charges over the course of the month, as well as 1% of the outstanding balance, to help borrowers reduce their debt at a faster rate.

5. People at risk of getting into financial problems will be given more advice and guidance on the consequences of re-paying too little each month. They will also receive an annual statement that shows the cost of their borrowing.

Further measures are being looked into to help protect borrowers, including a cap on the interest rates that can be charged on credit cards.

Credit card spenders growing more savvy

A recent study by the British Bankers’ Association (BBA) has suggested that consumers are becoming increasingly more savvy when it comes to credit card spending.

Statistics by the BBA indicates that the total number of people using credit cards fell by around 18% in the 12 months leading up to October.

Further to this, the average number of people drawing out money using their credit cards fell by more than 20% to £136. Drawing out money is not advisable as borrowers could be hit with very high fees and interest.

The figures also suggest that consumers paid a whopping £281 million off their credit cards in October, meaning that the UK as a nation owes just over £60 billion – the lowest level since August 2004!

David Dooks, Statistics Director for the BBA, commented:

“The use of cards for purchases is seeing a slow trend increase over time. But consumers regularly pay more than they spend, and cards are used much less to withdraw cash than they were a year ago.”

OFT Imposes New Credit Card Rules To Protect Borrowers

New credit card rules introduced by the Office of Fair Trading (OFT) are due to come into force from Janurary 2011, ensuring that credit card providers are no longer able to select the order that card debt is repaid.

Common practice for lenders is to allocate payment made by borrowers to the cheapest debt first. The OFT has suggested that this practice is unfair as it leaves the more expensive debt incurring interest over a lengthier period of time. This adds significantly to the amount of money that consumers have to repay.

The prospect of facing an expensive Christmas could be daunting and many people will be using credit cards to pay for much of their Christmas shopping. Credit card borrowers will welcome this news since they are likely to be confronted by sizeable bills after the seasonal period.

Experts in the financial services industry have stated that changing the order in which credit card debt is repaid “will save consumers a small fortune in interest charges.”

In spite of this news many credit card lenders already have these changes in place and CreditWindow suggests looking into all terms and conditions and comparing credit cards before applying for a new card.

Credit cards set to pay for Christmas

UK credit card companies dedicated to reducing fraud

Credit card spending at Christmas could prove costly

British consumers planning to use credit cards to fund Christmas shopping this year are being advised to be cautious, following research by the Co-Operative Electrical.

The firm found that almost a third of respondents aged between 25 – 34 planned to use credit cards to fund the Christmas period should they be rejected for an overdraft.

One finance advisor suggested that individuals need to consider the risk associated with mounting up credit card debt, especially if they are looking to make a number of smaller payments over a period of time as interest will increase month-on-month. She added:

“It’s obviously going to work out to be very expensive and you’re going to end up paying quite a lot of money in interest.”

CreditWindow urges people to carefully control their credit card spending over the Christmas period. It could prove to be a costly mistake should personal debt spiral out of control.

For alternatives to credit cards please check out:

Payday loans

Pre-paid credit cards

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