How to survive an ever changing credit climate

Just as the world is warming up, the credit climate has undergone a profound change since the recession took hold the money saving expert has discovered. According to the latest Bank of England figures, around 1.6 million of us apply for some form of credit every month, from loans and cards to mortgages - and nearly half are turned down. Many of the successful ones have to pay stiff interest rates.

Under these circumstances, it’s as important to protect and nurture your credit status as it is to lower your carbon footprint. You’ll find some ideas here.

Money saving expert recommends that you get to know your credit report

Get to know your credit report
Your credit report is the history of your credit accounts, along with your repayment history and other information that helps lenders to decide whether to make you an offer and what terms - such as interest rates - to set.

A great money saving tip is to look after your credit report because if you don’t and you fall into arrears you will find yourself paying more money to borrow money from the bank. The bank access your ability to pay a debt by the way you currently handle your finances now will charge you accordingly.

Lenders look for evidence that you are a reliable borrower who makes your repayments on time and in full and isn’t already maxed out. A clean report that shows you can comfortably manage further borrowing is more likely to get you the deals you want.

• It’s free to see your Experian credit report online with a 30-day trial of CreditExpert
• Check that everything in your credit report is up to date and accurately reflects your circumstances
• Look for any errors and ask the relevant lender to correct them - you’ll need to provide proof

Understand your credit scores

Your credit score - also known as a credit rating - is the key to the offer you’re after.

Finance lenders take items from your credit report and your application and allocate each one a value. The total is your credit score. In general, the higher your score, the easier you’ll find it to get a good deal on favourable terms.

• You don’t have a single credit score, as every lender uses a different formula - some even use different calculations for different products, so you could get two different results if you applied to the same lender for a card and a loan
• Your credit score changes over time, as your circumstances change
• You can get an idea of the impact your credit history has on your chances of acceptance by ordering your Experian Credit Report for £5.95 when you take a trial of CreditExpert

Credit cards
It’s now much more difficult to qualify for the most desirable credit cards. They include the dwindling number with 0% balance transfer - there are just 24 of these available, down from nearly twice that number a year ago. Other popular cards offer 0% on new spending, a percentage of your spending returned as cash back or low interest rates of around 6.8 per cent a year, against a current average APR of more than 17 per cent. If you currently have credit card debts then you will need to keep an eye on your credit report and make sure taht you do not miss any further payments.

The average member of CreditExpert has a credit score of 754, which is fair - but might not be fair enough. To be sure of bagging these cards, you should aim to improve your score until it becomes good and tops 880. If your credit score is lower still, you’ll be restricted to a card designed for people with a poor rating and may be charged in the region of 30 to 50 per cent APR.

• If your credit history is thin or poor, consider taking out a credit card with a low spending limit and repaying the total bill each month - it will hep you to build a good track record
• Cancel that just-in-case card you keep for emergencies before you apply for a new one - lenders take into account what you’re already able to borrow as well as what you have outstanding
• Register to vote - the electoral roll is used to verify your address and if you appear at an old address or aren’t on at all, you’ll be marked down

Never miss a mortage payment

Mortgages
Mortgage approval rates in August were up 81 per cent on the same month in 2008 but mortgage lenders are still cautious because of the potential for people to default.

Two factors are crucial here. The first is having a good credit history and a sizable mortgage deposit -the number of 90 per cent mortgages on the market has dropped from more than 900 in July 2007 to less than 100 today. These deals charge a comparatively high interest rate. In contrast, there are more than 300 mortgages available to people with a 40 per cent deposit, up from just 17 in July 2007. You’ll also pay less interest. You need to be have been in stable employment for at least 12 months and have no adverse credit  history in order to find the best mortgage available for your circumstances.

So it’s time to get saving.

• Never skip a repayment - it will stay on your credit report for at least three years, warning lenders that you could be unreliable.
• If an unforeseen event such as serious illness explains past problems in making repayments, you can add a note of explanation to your credit report
• Check your Experian credit report online before you make an application to be sure that you have done everything possible to make it attractive to lenders

Loans and bank overdrafts
Over half of us have been overdrawn at some point in the last year and 17 per cent of us are always in the red with our bank. Most people wouldn’t regard this as a form of credit but it is - and, like all credit, you’ll get the best deal if you take active control of your finances and work on your credit report.

If you know you’re likely to spend more than you have in your account at some point, you should always organise an authorised overdraft, which will not attract penalties and will come with a lower interest rate than if you simply overspend. Remember that your bank has a good overview of your finances and will not be impressed if it knows you’re struggling to make repayments on existing credit accounts. If you take out extra credit and it believes you have overdone it, you may find any existing overdraft is cut back or you could be charged higher interest.

Loans, too, can be cloaked in other terminology, such as the interest free credit available on many items of furniture and white goods. Don’t jump at the first offer you find - do your research at online personal finance sites, in newspaper supplements and magazines, then visit a price comparison site to find out what deals are out there and what interest you might have to pay.

• Check through bills, bank and card statements before applying for a loan or overdraft to see if you can cut back on your spending and borrow less
• Don’t apply for several loans in the hope that you’ll get one acceptance - or you’ll leave a trail of searches on your credit report that could make other lenders think you’re desperate or suspect a fraud.
• Scan your credit report for suspicious or unfamiliar entries that could indicate you’re a victim of ID fraud - if you find anything, contact the relevant lender immediately
• See your free Experian credit report with a 30-day trial of CreditExpert

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