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Monthly Archives: June 2016

Check Credit Score, Here Its Tips

Your financial assessment adequately demonstrates how well you’ve overseen credit before. The higher your score, the more probable any credit applications you make will be acknowledged, though the lower your score, the harder you’ll see it to get.

# Approaches to check your credit score

There are three primary credit reference offices, Experian, CallCredit and Equifax, all of which will have a record of your credit score.

You can get a duplicate of your statutory credit petition for £2 from any of these offices. This should be possible internet utilizing the accompanying connections:

-Equifax

-Experian

-Callcredit

You can also apply for a copy of your credit report by post.

Alternatively, there are other services which offer free access to your credit report, such asClearScore and Noddle.

Some banks and credit card providers, such as Barclaycard and Tesco Bank, also provide their customers with free access to their credit report.

Free and statutory reports will provide basic information on your credit score, but credit reference agencies also offer comprehensive ‘credit monitoring’ services for an extra charge, usually in the form of a monthly fee.

These will provide more detail information on your report and will notify you if there is any unusual activity, for example if someone is making numerous applications for credit in your name.

Experian and Equifax both offer 30-day free trials for these services, so if you don’t want to pay the monthly fee, be sure to cancel before the 30 days are up.

# How your credit score is shown

Different credit reference agencies show your score in different ways.

Experian and Equifax express it as a score out of 999, while Callcredit scores you out of five.

Regardless of which numbers are used, the higher the score you get, the better your credit score is.

That means whether you score four out of five or 950 out of 999, you’ve got a very good score, whereas if your score is one or two out for five, or 200 out of 999, your score is bad.

If your score isn’t what you were expecting, make sure there aren’t any irregularities in your credit report. For example, can you spot any information that is incorrect, such as missed payments when you know you paid on time?

If you find something wrong, let the relevant company know so they can amend their records, and put a ‘notice of correction’ on your credit report explaining why the information shown is incorrect.

Bear in mind that your credit score will form only part of any lender’s decision whether or not to lend to you.

They will all base their decisions on different criteria, so just because you are refused by one provider, that doesn’t necessarily mean you will be turned down by them all.

Don’t make multiple credit applications if you are initially refused though as this could damage your credit score further.

Instead, use our Smart Search tool which will give you an indication of how likely you are to be accepted for credit cards or loans without leaving a mark on your credit file.

Credit Card vs Loans

credit-card-vs-loans# Loans

— Pros

Larger borrowing at great rates – You can usually borrow more using a loan than a credit card.

And the good news is if you’re looking to borrow between £7,500 and £15,000, rates are more competitive than ever. In fact, the most competitive rates now hover just above the 3% APR representative mark.

Greater flexibility – Another advantage of a loan is that you can decide how long you need to repay what you owe. If you’re borrowing a large lump sum, you can therefore choose to spread your monthly repayments over a number of years.

You’ll have peace of mind that you know exactly how much you’re repaying each month, and that at the end of the term there will be nothing left to pay.

— Cons

Higher rates for smaller sums – One of the biggest downsides of loans is that rates are often more expensive if you are only borrowing a small amount.

If you take out a loan of around £3,000, for example, you’ll currently be charged more than 7% APR representative.

Fees – If you want to pay off your loan early, there may be a penalty charge to do this, which is usually equivalent to two or three months’ interest.

Some lenders also charge arrangement fees, which can increase the overall cost of credit.

# Credit cards

— Pros

Lengthy 0% deals – One of the big advantages of many credit cards is they offer lengthy 0% introductory rates on purchases.

Provided you pay off what you owe during the introductory period, this means you won’t have to pay interest on your borrowing.

The most competitive credit cards currently offer 0% on purchases for more than two years. Just be sure to clear your debt before the interest-free window ends.

Money transfers – Several credit cards also allow you to make money transfers directly into your current account, which can be useful if you need a cash injection, and rates are often much lower than if you were to take out a personal loan.

In some cases, you won’t have to pay any interest on this borrowing for three years or more. But be aware transfer fees can be high – often around 4% – and you should try to pay off your balance in full before the 0% deal ends and interest kicks in.

Consumer protection – Thanks to Section 75 of the Consumer Credit Act, when you buy something costing between £100 and £30,000 using a credit card, the card provider is jointly liable with the retailer if something goes wrong.

So, for example, if you ordered a chair costing £150 and the shop you bought it from goes bankrupt before it is delivered, the credit card provider should provide you with a full refund.

— Cons

Interest charges – You need to be disciplined about paying off what you owe on a credit card as soon as possible (and definitely before a 0% offer ends), or interest charges can soon mount up. Unlike loans, credit cards don’t require you to clear your balance within a certain timeframe.

Low minimum payments – Minimum monthly payments on cards are often set at very low levels. If you only pay this amount each month, not only will it take you longer to clear your debt, you’ll pay out far more in interest. So try to pay off more than the minimum if you can.

Low credit limits – Another downside is that credit cards usually don’t offer particularly high credit limits, so if you need to make a big purchase, you may not be able to borrow the sum you need.

Saving or Paying for Debt?

So it’s maybe nothing unexpected that we feel awful in the event that we don’t set cash aside for what’s to come.

In any case, does it bode well? A large portion of us would in truth be in an ideal situation on the off chance that we disregarded the counsel to spare and rather paid off our obligations.

Obligation discuss

Suppose a family has a charge card obligation of £1,000 and reserve funds of £1,000 in a simple get to account.

The loan fee on the charge card is 19%, which implies the obligation costs £190 a year. Be that as it may, the loan cost on the investment account is a negligible 2% net, so the yearly reserve funds premium is just £20 – before assessment (at 20%, 40% or 45%, contingent upon your expense band).

In other words, the family spends more on the debt than it earns on the savings – £170 more to be precise. So, if the family used the money in the savings account to clear the debt, they would be £170 better off a year.

# Tax change

Tax will take a smaller bite from our savings from April 2016, when the Personal Savings Allowance comes into force.

Basic rate taxpayers will then no longer pay tax on the first £1,000 of interest they earn from savings. For higher rate taxpayers, it’s the first £500.

But you should do the sums because you could still save money by not saving money.

The figures are particularly compelling because savings rates are currently so low. The top easy access account pays about 1.65%. Or you can earn about 1.5% in a tax-free cash individual savings account (ISA).

# Interest payments

The interest rates on personal loans, credit cards and overdrafts are usually much higher. The typical credit card rate, for example, is about 19%.

In other words, it is more expensive to borrow money than to save. Anyone with savings who also has costly debts should therefore consider using at least part of their savings to help clear their debts.

It makes sense to always pay off the most expensive debts first – and watch out for any penalties.

If you have a personal loan, for example, there could be a penalty of several months’ interest if you pay off the debt before the end of the loan term. It can still make financial sense to clear the debt, but you have to factor the penalty into your calculations.

The cheapest – and biggest – debt is usually the mortgage. You should therefore only pay off, or pay down, the mortgage if you have cleared other, more costly debts. Otherwise, the same calculation applies.

So, if the mortgage interest rate is higher than the savings interest rate, you should consider cutting down the amount you owe on the home loan.

 # Substantial savings

The savings can be substantial. Let’s assume you have a £100,000 repayment mortgage at 3.5% over 20 years. If you paid just £50 extra a month, you would clear the debt after 18 years and save a total of £4,700.

Penalties often apply if you clear all or some of your mortgage early, although more lenders these days allow you to pay off up to 10% of the outstanding debt each year without penalty.

Alternatively, you could consider an offset mortgage, where your savings are ‘offset’ against your borrowings.

For example, if you have a mortgage of £100,000 and savings of £10,000 you would pay mortgage interest only on £90,000. You can also usually access your savings in an emergency.

# Cheap borrowing

If it’s cheaper to borrow than to save, there’s nothing to gain by paying off debts.

For example, if you have a 0% credit card, you are effectively borrowing money for free. You should therefore keep any spare cash in a savings account where it can earn interest at a higher rate.

# Cash cushion

Some people are reluctant to empty their savings account because they feel exposed without a cushion of cash in case of an emergency.

Many experts also advise people to keep the equivalent of three months’ earnings in a savings account (if possible, of course).

But not everyone agrees – and some advisers argue that your emergency fund could be costing you dear.

Let’s go back to our fictitious family. Suppose they used their £1,000 savings to clear their debt, but then the car broke down. How would they pay for the repair?

Well, they could put the bill on the credit card, or possibly take out a loan or overdraft. They wouldn’t be any worse off, and would probably have already saved money on the interest payments.

Of course, if you don’t have access to credit, it’s a good idea to keep some money in a savings account in case of an emergency. You should also resist the temptation to get into a debt cycle. So, once you have paid off a debt, don’t then go on a spending spree.

# Pension priority

Pensions are possibly the exception to the rule about prioritising debt clearance over saving.

First, there are generous tax breaks on pensions.

Second, your employer might contribute to a workplace pension scheme on your behalf.

Also, the earlier you start to save into a pension the better as your money has more time before your retirement in which to grow.

You should therefore only prioritise debt clearance over pension savings if the interest payments on your debt are critically high.