Credit Ratings - How To Use Them To Your Advantage
To many people credit ratings are a bit of a mystery and whether you get accepted for a loan or not can seem like a lottery. Part of the reason is that the credit culture we’re used to today hasn’t actually been around that long. So the unknown nature of it all has helped perpetuate a number of credit report myths and misunderstandings.
How banks decide who to lend to
A bank will basically use three different types of information when deciding whether to give you a loan, credit card or mortgage. Firstly, it will look at the information on your application form. As well as items such as your age, income and marital status, it will look at how often you’ve moved jobs or home. This will give it an idea of how ‘stable’ you are financially.
Secondly, it will look at how you’ve acted when it’s dealt with you in the past, so how you’ve operated your current account and whether you’ve repaid loans on time. Obviously, if you’ve never dealt with the company before this stage will be skipped.
The last of the three steps is to look at your credit report. There are three agencies in the UK who keep this sort of information. They are Experian, Equifax and Callcredit. Your credit report contains various bits of information about your credit history with other lenders, which we look at in more detail below.
Having looked at each of these three sources of information, a lender will then assess how you measure up on various points and build up its own credit score for you. If your credit score is greater than a certain number, your application will usually be approved. If it’s not, then you’ll either be rejected or offer a smaller loan or one at a higher rate of interest.
Unfortunately, lenders don’t disclose how they score individuals. Each company will assign a different rating to various issues, depending on their experience with customers in the past, so this is why you might be rejected for credit by one lender but accepted by another. Although it’s a popular misconception, there is no such thing as a ‘credit blacklist’.
What’s on your credit report?
Credit reports contain many different types of information about you. For example they contain matters of public record such as whether you are on the Electoral Roll (a prerequisite for approval by most lenders).
Your credit report will also show whether you’ve had any County Court Judgments (CCJ) against you or whether you’ve been made bankrupt, are in an Individual Voluntary Arrangement (IVA) or a debt management programme. Usually these items are shown for the last six years only but it can be longer if you’ve been issued with a bankruptcy restriction order if the court believed you acted dishonestly or were to blame for your bankruptcy.
Any recent applications for credit you’ve made are also shown on your credit report. Usually this information is kept for twelve months but Callcredit keeps it for two years. Whether the application was accepted or not and the amount is not recorded but obviously a lender will able to see if you then went on to have a loan with the company concerned.
Several applications for credit in quick succession can affect your chances of getting further credit as a lender may assume you have been refused or are in danger of taking on too much debt. One way around this problem is to ask for quote for credit rather than making a formal application. This won’t appear on your credit report and you’ll need to make a formal application if you do then proceed to take out a loan. You can also ask for a quotation search rather than an application search to be made.
This will appear on your credit report but any lender will be able to see it wasn’t a formal application.
If you have any financial associations with another person a note of this will appear on your credit report. In this instance, a financial association means having, for example, a joint loan, bank account, credit card or mortgage. A financial association allows a lender to access the other person’s credit report when assessing whether you’re suitable to lend to.
Just because you’re married to or living with someone, their credit history won’t automatically be associated with yours. Additionally, any credit problems previous residents or tenants of your property have had won’t affect your ability to get credit.
Finally, any debt agreements you have or that have been settled within in the last six years will also be recorded on your credit report, together with a summary of your recent payment record where applicable. If you are in arrears or in default then this will be shown. Not all lenders supply information to all the credit report companies so it may be that not all your debts will appear. Some lenders only supply negative information so a record might only appear if you’ve been in arrears or default.
As well as debt agreements, mobile and pay TV payment information may appear on your credit report. Information relating to the payment on utility bills or council tax does not however. Rather perversely, a lack of credit in the past can mean it’s more difficult to get accepted for a loan. Lenders prefer to see a clean credit history rather than none at all.
Getting hold of your credit report
You can write to any of the three credit report agencies and get your credit report for £2. You’ll need to provide your full name, date of birth, and any addresses you’ve lived at in the last six years. This process normally takes a week or so.
As well as using snail mail, you can access your credit report instantly online. This is usually more expensive and there are even more pricey monthly subscription options which allow you to view your report at any time and which also provide you with alerts whenever someone accesses your credit report.
It’s worth looking at your credit report every few years and they do tend to contain a lot of mistakes. For example, a loan may not be recorded as settled or you may still be listed as a bankrupt even though you’ve been discharged. If you contact the lender or court concerned then you can usually get the information corrected. If they disagree then you’re entitled to attach a Notice of Correction to your credit report. This can be up to 200 words long. It may not help sway any new lender but at least they will see your side of the story!
Finally, a word of warning about companies who claim they can repair your credit report. Basically, they cannot do anything you can do yourself for free. And they most certainly can’t remove items like CCJs!
Save Money By Switching To A Cheaper Loan
Switching to a cheaper personal loan certainly isn’t as popular as remortgaging or taking out a 0% balance transfer credit card. Although the principle is the same, the savings are sometimes less than you expect. Nevertheless it’s still worth investigating as in some circumstances you could save a respectable bundle of cash.
For example, if you’ve taken out a personal loan via a bank branch, you could be paying a much higher rate of interest than is currently available on the market. As you might expect, the saving you could make will be greater for larger loan amounts and if the loan still has several years to run. Many companies allow you to use their personal loans for debt consolidation so you may be able to combine two or more expensive personal loans into one cheaper one.
The first step is to establish what sort of early repayment penalty applies to your loan. Each company has a different policy and recent loans tend to have lower penalties due to a rule change that came into force in 2005.
Any fixed-rate loan taken out on or after 31 May 2005 can only have an early repayment penalty of up to two months’ interest. Additionally, any loan taken out before this date and that was due to last for 10 years or less, now also has a maximum penalty of two months’ interest. So, if you have an old loan, you’ll find that the exorbitant repayment penalty that was specified in the original agreement now no longer applies. Unfortunately, if your loan was for greater than 10 years, then the original penalty charges do still apply for a little while longer (the two month maximum for loans of this length does not come into force until 31 May 2010).
There is one additional complication for loans taken out before 31 May 2005. The way the outstanding amount is calculated on these loans may be based on an archaic method called the “Rule of 78”. There’s no need to go into details here and not all lenders use it. Suffice to say the rule works in the lenders’ favour so it can add a little extra to the amount you have to repay.
The next step is to request an early resettlement figure from your lender. This will tell exactly what you have to pay to settle the loan in full. You can then use this figure to see what a replacement personal loan would cost and compare the two.
Comparing your new loan
The easiest way to compare the old and new loan is to assume your new loan runs for exactly the same time as your old one would have. You can then simply compare the total of remaining instalments for your old loan against the total of the installments you’re required to pay for the new one.
Say you took out a £5,000 loan for five years, you’re paying £109 a month, and it has three years left to run. You’ve been quoted an early resettlement figure of £3,250, and you discover a new loan for this amount will cost you £100 a month. The total amount you have to repay for the old loan would be £3,924 (36 times 109) and for the new one would be £3,600 (36 times 100). So in this case you would save £324.
Saving even more money
You may have some spare cash which you can use to pay off part of your loan. In this case your new loan would be less than your early resettlement figure, so you’ll save a little bit of interest. The rate of interest you can get on a savings account will normally be less than a personal loan, especially once you’ve taken tax into account. So it’s usually worth using savings to pay off your debts.
You may also be able to pay back your new loan over a shorter time period than your existing one. For example, you might have had a pay rise or paid off other debts meaning you have more spare cash each month. A shorter repayment period will mean higher monthly repayments of course, but it will save you interest overall. You can still compare your existing and new loan by looking at the total amount you repay under each scenario. Using our previous example, reducing the term of your new £3,250 loan from 3 years to 2 years would save you an additional £100
It might be tempting to pay off your loan over a longer period of time. However, this is something best avoided if at all possible. You will pay less each month but a lot more interest in the long run. Still, it’s an option if your finances are tight.
One thing to be aware of is that the interest rates for personal loans tend to get more expensive for lower amounts. So if you’re looking for a loan of less than £3,000 you’ll have to pay a higher rate and may find that you only have a choice of a few lenders. Rates tend to get cheaper at £5,000 and £7,500 so, if you’re refinancing a loan above these levels, it’s more likely that you’ll be able to save a worthwhile amount. If you’re looking to replace a loan of under £3,000 with two years or less to run, it’s unlikely you’ll save that much money.
What about payment protection insurance?
One final point to consider is what happens if you have a payment protection policy on your old loan.
The way refunds for these policies are calculated has been scrutinised by the FSA, in particular for what is known as single premium policies where the entire cost was added to the loan upfront.
You should now be able to get a partial refund for the cost of any policy but if your lender plays hardball then it’s worth speaking to the FSA or the Financial Ombudsman to bring them into line. In some circumstances you may even be able to reclaim the entire cost of the policy on the grounds it was mis-sold.
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The Pros & Cons - Loans vs Overdrafts vs Cards vs Mortgages
One thing that can trip many people up is when to use different forms of borrowing. They each have their own characteristics so, depending on what you need the money for, one type will usually be the most appropriate while the others could turn out to be very expensive.
The most important factor to consider is the time you need to borrow for. Traditionally, overdrafts are the shortest term form of borrowing followed closely by credit cards. Personal loans are more medium term and mortgages are, of course, long term.
Overdrafts
Let’s start with overdrafts. These are most useful if you find you only dip into the red on rare occasions and for just a few days at a time. If you find that you’re spending more than you earn each and every month and you have a core overdraft that never gets paid off, then you really need to either cut down your expenses or arrange a more permanent form of borrowing.
Overdrafts come in two main types. These are authorised, i.e. those agreed with the bank in advance, or unauthorised. As you might expect, the rates for authorised overdrafts tend to be a lot lower than for unauthorised ones. A typical difference may be 20% compared to 30%. You’ll also get hit with extra charges, usually for each day you have an unauthorised overdraft.
As an added complication, many banks are now making daily and monthly charges for overdrafts instead of charging interest. This can make an overdraft either a lot cheaper or a lot more expensive, depending on the nature of your borrowing pattern.
However, it also makes it a lot harder to compare bank accounts as you’ll need to estimate how many days you’ll be overdrawn each month rather than just being able to compare interest rates.
Overdrafts are useful, short-term borrowing tools and you don’t need to explain to your bank what you need the money for. However, the charges and rates can change at short notice and in the worst case scenario your whole overdraft could be called in. This is why you should consider other forms of borrowing if you run permanently in the red – it’s also usually a lot cheaper!
Credit cards
Credit cards have evolved in the last decade and become a much more flexible borrowing tool. The proliferation of 0% balance transfer deals has been the main driver but 0% purchase deals and cash back offers have played an important part too.
Matt Barrett, then chief executive of Barclays, was famously lambasted back in 2003 for saying he never borrowed on credit cards and advised his family not to either. But he wasn’t far wrong. Credit cards, like all forms of flexible borrowing, are expensive. Interest rates can be increased and credit limits can be reduced, both at short notice.
Once the introductory offers have run out, you may be able to switch to another credit card. Any debt that will take you longer than two to three years to pay off is usually better suited to a personal loan. That said, some credit cards offer lifetime balance transfer rates which can cheaper rates than personal loans and also give you more flexibility with your repayments.
Personal loans
Personal loans let you borrow between £1,000 and £25,000, typically for up to ten years. The great advantage they have is that the interest rated is fixed when you take out the loan, so you know exactly what your payments will be for the entire term of the loan. As long you don’t default on the repayments, then the loan they can’t be called in at short notice.
Rates for amounts over £5,000 tend to be quite reasonable, typically around a third to a half of those charged for an overdraft or on a standard credit card. Those between £3,000 and £5,000 are less competitive and those below £3,000 are quite expensive. So if you’re borrowing a small amount of money, then a credit card can be often more cost effective.
Personal loans are ideal for funding a new car, holiday or for consolidating other debts. If you’re borrowing for a particular purpose a good guide is to match the length of your loan to the life of the asset. So if you think your car will last you five years then a five-year loan makes sense. A five-year loan for a holiday is not quite so clever! All else being equal, you also want to pay back any personal loan as quickly as you comfortably can. While the interest charges are relatively low, they can soon stack up.
Mortgages
A mortgage is a very, very long term debt. The standard mortgage lasts for 25 years of course. In recent years it’s been fashionable to release money from your home by remortgaging either for a greater amount or for a longer time. While this can make sense in some circumstances – home improvements are probably the best example - it’s a lot more expensive than you might think.
Increasing your mortgage to fund a new car or holiday is very rarely a good idea. It’s likely that any new car will be in the scrap yard long before you’ve finished paying for it. A £10,000 personal loan repaid over 5 years will cost you around £2,000 in interest. An extra £10,000 on your mortgage will cost you £11,000 in interest. That’s over five times as much.
In conclusion, it’s worth spending a little bit of time to make sure you get the right form of debt for your borrowing needs. The amount of interest and charges you’ll save can be considerable.
How to get the cheapest loan - insider tips!
Personal loans aren’t quite as cheap as they used to be but they can still offer a low cost method of borrowing money. The cost of loans varies widely though. Pop along to your local bank branch and you’ll pay through the nose. Search online and you’ll get a much cheaper deal.
Personal loans allow you to borrow between £1,000 and £25,000 at a fixed rate of interest. Most forms of borrowing charge variable rates of interest so the fixed rates offered by personal loans are an attractive feature, especially for those on a tight budget.
Personal loans can be for up to 10 years, although between 3 and 5 years is more usual. Even though rates are generally quite low for personal loans, ideally you want to pay them off as quickly as possible as this will save you interest in the long run.
Don’t be too aggressive though, always leave yourself a little bit of slack in your budget to help guard against unexpected costs. They are some flexible personal loans around, which allow you to vary your repayments, although these tend to have higher rates of interest that are usually not fixed. Additionally, some personal loans will allow you to take short payment holidays.
Personal loans are unsecured so, if you were to default on your payments, the lender cannot seize your assets to pay off the remainder of the loan. However, if a lender issues a county court judgement against you and you fail to make the payments relating to this then they could apply for what is known as a charging order against your assets. When you sell your home, for example, you would then have to use part of the proceeds to repay the debt.
How’s your credit profile?
Let’s get the bad news out of the way first. Personal loans are generally only available to those who have a good credit profile. So this means you must not have missed any repayments on previous debts and that you haven’t changed jobs, bank accounts or moved home on a frequent basis.
If you’re newly self-employed this could also rule you out as it will be difficult to prove what your income will be. Oddly, if you’ve never borrowed anything before this can also count against you as you’ll have no payment history that a lender can examine
Each lender has its own idea of what makes a good borrower though, so some are more lenient with certain requirements than others. It’s difficult to say who these lenient lenders are though, as acceptance polices are generally not made public and change over time.
If you haven’t got a good credit profile then you’re more likely to be pushed towards a secured loan. The interest rates on these are usually higher than personal loans and there are additional fees and charges too. On top of that the rate of interest is usually variable rather than fixed. Finally, the loan is secured on your property so, as the warning goes, your home is at risk.
How loan rates vary
Most personal loan lenders offer tiered rates of interest meaning that they charge lower rates of interest for higher amounts. Typically, the lower rates kick in at £3,000, £5,000 and £7,500 and you may find that not that many lenders offer decent rates below £3,000. Among the big banks in particular, the difference in rates between each tier can be quite significant and this can lead to the bizarre situation whereby it’s significantly more expensive to borrow, say, £4,900 rather than £5,000!
Almost all companies now use what is known as risk-based lending when it comes to personal loans. This means that the rate they offer you will depend on your personal circumstances and could be higher than the typical APR they’ve advertised. By law they have to offer the typical APR to at least two thirds of people they accept for loans.
Don’t focus on the APR
Although the APR, or Annual Percentage Rate, is the headline rate you see advertised for all personal loans it’s not a perfect measure of the cost of the loan. They are different ways it can be calculated and it can be distorted when no payments are required for the first few months.
So when comparing two loans or more of the same amount and length of time, it’s better to use the total amount repayable rather than the APR. It could save you a few bob.
Watch out for additional costs
Although personal loans are fairly straightforward there are a few additional costs you need to watch out for. Some companies charge a fee of up to £50 if you want the money immediately rather than in a week or so. Indeed the odd company has been known to add this fee in as a default option so watch out for this if you don’t need the money straight away.
Penalty charges for repaying a personal loan early also need to be looked at. Since 31 May 2005, a lender can only charge two months’ interest if you repay a loan early – earlier loans may have higher penalties. It’s estimated that over two thirds of loans are repaid early, so a loan without any repayment penalty is preferable.
By far the most expensive additional cost is payment protection insurance. Traditionally this cover has been a license to print money as far as personal loan companies where concerned.
Indeed it can often cost a larger amount than you interest you’re charged! You don’t need to take it out as a condition of being accepted and, if you do think it’s worth having, you’ll nearly always be able to get it at a fraction of the cost from a specialist company that only offers these policies.
Debt Consolidation Loan
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Debt consolidation loans are popular for their ability to combine other debts in to one monthly payment. You’ve probably heard the endless television commercials about consolidating your outgoings, and there does seem to be a large market for this kind of financial action.
There are many reasons why you might wish to consolidate your debts. Consider the idea that you have several outgoings, all at different monthly fees, all with different deadlines to be received by. Is that going to help you sleep easily?
It can be a time consuming business to keep on top of a loan, and even more consuming to keep on top of several different debts. By consolidating, we can take out another loan and pile the debts together.
Don’t expect your outgoings to suddenly disappear in a puff of white smoke, we haven’t got that far yet. But it is a great way to loosen the responsibility on your shoulders and grab control of the situation.
Of course, there’s also the chance that your debts are working at different interest rates. Some may be fixed, others may be variable.
How are you maintain a budget when rates are skipping all over the place and you don’t know what’s what. By using debt consolidation, you can turn all those differing rates in to one single interest-rate.
It’s likely that the interest rate will be high, although you can get special 0% bonuses for set time frames. These act as an introductory incentive more than anything.
Both variable and fixed debt consolidation loans are available. Variable rates are by far the most actively used loans and they have the potential to go both up or down. It’s nice to know that only one of your repayments is gaining interest, rather than a whole filing cabinet full of them!
And once again, you can expect to find both secured and unsecured debt consolidation loans. If you have a mountain of debts to take care of, it’s likely that only a secured loan with be suffice.
These kind of loans offer extra money and lower interest rates - but they come with the additional burden of having to secure the loan. To secure a loan, you’ll have to link it to your assets , and normally your home.
Unsecured loans offer less money and are a good option for consolidating lots of mini-debts. They don’t come with the stress of having to tie your property in to the equation, and you have a certain degree of the flexibility.
What a lender is willing to offer you will be determined largely by your credit report. If you have a good history, you’re more likely to be offered an unsecured debt consolidation package. If your record is tainted, you could end up having to put your home at risk.
Debt consolidation offers peace of mind more than anything. It’ll take you longer to pay off your debts, but on a monthly basis, you’ll have much less to worry about. It’s also possible to make savings due to the consolidated interest.
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Used in the correct way, credit cards can either save or make you a significant amount of cash each year. Credit card companies have plenty of tricks up their sleeves to stop you, but a little know how is all you need to beat them at their own game.
Why you need at least two credit cards
Looked at in its simplest terms a credit card has one of two basic purposes. Either you can use it as a cheap method of paying off debt. Or it can be used to save money on purchases by delaying payment or claiming cash back or rewards.
The trouble is that one credit card will rarely be able to perform both jobs. So if you’re looking to both reduce an existing debt and use a card to fund future purchases, you’ll need a separate card for each task
A look at some of the most popular cards illustrates why this is the case. Many cards offer 0% interest on balance transfer deals for 12 months and, alongside this, also offer 0% on purchases for 3 months. Let’s say you transfer a debt of £3,000 to this card and also spend £1,500 on it in the first 3 months.
After three months your 0% purchase deal runs out and you will be charged interest at somewhere between 15% and 20% a year. That’s not so bad you might think…. I’ll simply pay off that £1,500 first. But this is where the credit card companies get sneaky.
Any payments you make will be set against the debt with the lowest interest first, in this case the £3,000 balance transfer you made. Not until this entire amount is cleared will any payment you make reduce the £1,500 bill for your purchases. By this time several months are likely to have passed and you’ll have racked up a few hundred quid in interest charges.
The solution to this is to get another card for your current spending. You’ll probably be able to get a 0% purchase deal by itself that runs for 9 to 12 months. Use this card, and only this card, for any new spending and don’t add anything to the card you’re used for your balance transfer. Problem solved!
The danger of missing repayments
One other little known fact about credit cards is what happens if you miss a scheduled monthly repayment. In most cases you’ll end up with a standard £12 charge plus you’ll incur a little interest.
If you’re currently enjoying an introductory deal like a 0% balance transfer offer it’s a totally different story though. Even though you’re not being charged any interest, you still have to make a minimum monthly repayment – usually the higher of £5 or around 2% of the balance outstanding.
However, one missed repayment could mean the credit card company withdraws its promotional deal. This means that not only will you pay interest going forward, you could also be charged interest for previous months.
Using our example of a £3,000 balance transfer from earlier, let’s say you miss a repayment near the end of a twelve-month offer. If the standard interest rate on the card is 20%, you could be charged almost £600 in back interest – all for missing one single repayment
Always check the amount you’re required to pay and by when each time you receive a credit card statement. It’s typical for credit card companies to move the date around by several days each month and sometimes even change the terms for the minimum amount you have to repay.
This is one downside of having more than one credit card of course, as it means you have at least two payments to make each month. One way of getting round this is to set up a direct debit payment for each card. But it’s still worth double-checking each month to make sure any payment you’ve set up will be sufficient.
Plan ahead for your next credit card
Some of the credit card offers on the market almost seem too good to be true. Indeed most of them are initially loss-making for the credit card companies. In order to turn a profit, they’re relying on us to slip up in some way. One of the most common ways for this to happen is for you to leave a balance on their card once your introductory offer has run out.
The credit card companies know that a large percentage of people will do this. One survey reckoned the average balance transferred was just under £3,000 but around £2,100 was still owed once the balance transfer deal expired. It’s all too easy for this to happen. You’ve taken out a card a year or more ago and, once you start having to pay interest, it seems like too much effort to move what’s left.
How much could this cost you? If you’ve already paid off most of your balance then this may not be a problem. But if you’ve still got a £3,000 balance on your card then this could cost you £50 in interest each and every month. Borrowing on credit cards is an expensive option once you’ve got no special deal to ease the burden
Make a note in your diary for a month or so before your credit card deal expires. This will give you plenty of time to decide what to do next and apply for another card if you still have a balance to clear.
Know who’s behind your credit card
Although there are many hundreds of different credit cards out there, the majority of them are operated by a handful of big players. You might think this doesn’t matter but, when it comes to searching out a new balance transfer deal, it can make a big difference.
Many credit card companies won’t offer you a 0% balance transfer deal as a new customer if you’ve already got another credit card with them. So it pays to know who’s behind your credit card. MBNA and HBOS are two of the largest players in the market, followed by HSBC and Royal Bank of Scotland. GE Capital is another one to watch out for, as they operate many of the major store cards
So when you apply for a new card, make sure you know who’s behind your current credit card and who operates the one you want to apply for. It saves wasting time getting rejected for a balance transfer deal and avoids getting an unnecessary mark on your credit report.
Recently the ongoing court case regarding bank charges has been grabbing a lot of headlines. While it’s being sorted a stop has been put on any reclaims. However, this hasn’t affected a similar process to do with reclaiming credit card charges.
Three cheers for the OFT
Credit card companies charge penalty fees for three misdemeanours. These are missing a monthly repayment, having a monthly payment returned as unpaid and exceeding your credit limit.
Back in April 2006, the Office of Fair Trading ruled it would investigate any credit card company that charged a penalty fee of more than £12 for these hideous crimes. By astonishing coincidence, all the major credit card companies reduced their fees shortly afterwards from around £35 to £12, where they have remained ever since.
It’s estimated that credit card companies were making around £300m a year from these excess charges. Although excessive bank charges are reckoned to be over double this amount, it’s still a significant sum and many people will be able to reclaim a few hundred pounds in past charges for relatively little effort.
How far back can you claim?
This depends on where you live. There is a legal time limit of 6 years if you’re in England and Wales. Scots, unfortunately, can only go back 5 years
If you’re the organised type, you may have credit card statements going back this far. But if you don’t there’s an easy solution. Simply write to your credit card company and request the information. Under the Data Protection Act, they can only charge you a maximum of £10 for this information.
Don’t forget that you may have old credit cards that you no longer use and that you can reclaim charges on these as well. As it may cost you £10 for each credit card, you’ll probably want to concentrate on the cards you used the most as these are more likely to have had charges.
How much can you claim?
There are two schools of thought here. You can either claim the full amount of the credit card charges you’ve paid. Although the Office of Fair Trading has signalled £12 as not being an unreasonable charge, the true cost is probably a fraction of this and it’s yet to be formally tested in a court of law.
The second option is to reclaim only the excess over £12. This is more likely to be successful but you can always fall back to this amount at a later date so many people prefer to claim the full charge as a starting point
You can also claim interest for any old charges. The standard amount to use, as it’s the amount used in the courts, is 8% for each year since each individual credit card charge was levied. So for a £30 charge levied 5 years ago you could add an additional £12 (40%) in interest. This can boost your claim significantly so it’s worth a little effort to work it all out.
How can you claim?
It’s as simple as writing a letter to your credit card company outlining that you believe the charges are illegal, listing what you’ve been charged and how much you like to reclaim.
Although some credit card companies will pay up, most will use delaying tactics or make a partial offer. You could accept the partial offer but, if not, the next step is to threaten that you will either take the case to court (the small claims court will be most practical in many instances) or to the Financial Ombudsman. Many people are using the latter as it’s free for consumers.
A couple of final warnings
Let’s close this piece with a couple of areas to watch out for.
Firstly, it’s quite likely that the credit card company will close your account if you take this course of action, saying that it’s left with no alternative if you don’t accept its terms and conditions. So it’s advisable to have another credit card account ready to go before you start the whole process.
Secondly, there are a number of companies around who will make these reclaims on your behalf. Typically, they charge 25% of any amounts refunded. Although these can save you time, it’s quite a price to pay for something you can do yourself with relatively little effort.
Good luck with your reclaim!
Credit Card Pitfalls - How To Avoid Them!
Credit card companies have many different ways of squeezing a little extra cash out of your wallets. Sometimes the amounts are quite small, but after several years the cumulative effect of all these tricks can cost you a sizable sum.
The minimum monthly payment trick
Many people look upon the low minimum monthly repayment you can make on a credit card as a blessing. In fact, it’s just the opposite. The minimum you can pay has become steadily lower in recent years and now the higher of 2% of your outstanding balance or £5 is fairly typical for a minimum monthly repayment.
Now 2% a month doesn’t sound too bad. Over the course of a year this should mean you pay off almost a quarter of your original debt. The problem though is the high rate of interest that credit cards charge. If you’re being charged 20% interest a year, payments of 2% a month are only going to make a small dent in your debts over the course of a year.
Indeed, paying the minimum amount on a credit card can result in a debt that lasts far, far longer than the typical mortgage – and that’s 25 years. An example will help demonstrate this. Say you have a £3,000 balance with interest charged at 20%. If you pay the minimum of 2% or £5 this debt will be cleared in …… wait for it …… just over 52 years! So if you take out this credit card at 18 you’ll still be paying it off on your 70th birthday. You’ll also be charged over £9,000 in interest over this time, which is over three times the original debt in interest alone
Paying the minimum amount is fine when you have a 0% balance transfer or purchase deal. But with a normal credit card, it’s a life-long debt sentence. If you have more than one card, then pay as much as possible on the one with the highest interest rate and the minimum (or as much as you can afford) on the others. Continue doing this until the first cards is paid off and then repeat the process with the second card and so on. This way you can escape the curse of the minimum monthly repayment!
Card protection insurance
In contrast to our first pitfall, this one is relatively minor. Well, you probably need a breather after that shock.
Card protection insurance provides an emergency service should your credit cards get stolen or lost. They’ll ring up all your card providers, organise replacements and ensure you don’t lose any money as a result. It’s usually offered by one of two main providers – Sentinel or CCP. Sentinel is the largest player in the market, covering some 6 million people.
The cost of these policies is around £20 to £30 a year, so it’s hardly an enormous sum. But you covered for fraudulent losses over £50 and, in practice, banks usually waive this amount anyway. This cover often covers other people in your household too, so compared to some other forms of insurance, it’s not the worst value cover out there. Still, it’s not good value either and many people would rather have the extra £30 in their wallet.
Credit card repayment protection
Let’s turn to another form of insurance. Credit card repayment protection (CCRP for short) is a form of payment protection insurance designed to cover your card payments if you’re unable to pay them due to an accident, an illness or unemployment.
There are a couple of tricks to watch out for here. Firstly, it’s the way the cost is expressed – normally at between 70p and 80p per £100 of cover. Put this way it doesn’t sound like much. But this is for each month, meaning that to protect a balance of £3,000 can cost you almost £300 a year
The second aspect to look at is how much the policy will actually pay each month if you need it. Most policies pay somewhere between 3% and 10% a month, yet still cost around the same per £100 of cover. So a policy that pays out 3% will cost you almost £300 a year yet only pay out a maximum of around £1,000 over twelve months. Obviously those that cover 10% offer the ‘best’ value but it’s still a hefty price to pay for protection that you’ll rarely use.
So, regardless of how much your CCRP policy pays each month, this is one form of optional insurance you can well do without. If you’re worried about protecting your income, a more general form of income protection policy that protects all your outgoings, not just your credit card repayments, will offer far better value for money.
Cash withdrawals
Last of our four pitfalls is withdrawing cash on your credit card. This hits you in so many ways it’s hard to know where to start.
First up, the interest rate you get charged on cash withdrawals is usually higher than for normal purchases. It’s often in the region of 25% to 30% a year. Secondly, you don’t get the normal 45-day grace period you get with purchases, where you pay off your balance a month and a half later and don’t get charged interest. With cash withdrawals the interest starts racking up straight away
Thirdly, you’ll also get hit with a one-off fee for each cash withdrawal. This is typically around 2.5% of the amount withdrawn with a minimum of £2.50. If your withdrawal is in a foreign currency, you‘ll get hit for an additional charge of around 2.5% on top of that. Last of all, due to the way credit card companies allocate your payments, any cash withdrawals you make will be paid off last, as debts with the lowest interest rate are paid off first.
All in all, you’d be better off using a loan shark than withdrawing cash using your credit card. Don’t do it!
How To Reduce Your Debt Using A Credit Card
Several years ago, if you had suggested that you could use a credit card to reduce your debts you would have carted off to the nearest nuthouse. These days however, with credit card companies offering a variety of special offers to lure in new customers, it’s an accepted and popular method of reducing your debts.
How’s your credit history?
Before the credit crunch set in, it seemed like the only requirement for getting a new credit card was that you were breathing. Credit card companies are a little more cautious nowadays. Generally speaking, you’ll need a pretty clean credit history, i.e. no missed repayments for the last few years, in order to get the best deals on the market.
If you don’t fall into this camp, then attempting to get a balance transfer deal from one of your existing credit card providers is probably your best option. It’s amazing what offers turn up when you threaten to take your business elsewhere.
How much debt do you have?
There are two main ways to reduce your debts with credit cards. The first is to use a 0% balance transfer card (and another one when the introductory offer runs out). The second is to use what’s known as a lifetime balance transfer deal which charges you a low, fixed rate of interest until your entire balance transfer is paid off.
Which option suits you best will depend on how quickly you reckon you can pay your debt. There’s no hard and fast rule here but a good guide is that if it will take you more than two years to pay off your debts, then the second option of a lifetime balance transfer card will probably be more suitable.
There are two factors at play here. First up, switching again and again to succession of different 0% credit cards gets harder and harder each time and can affect your credit rating. Secondly, you don’t really know what sort of offers will be available each time you switch, so there’s no guarantee you’ll be able to get the deal you need, especially if your credit rating has deteriorated in the meantime.
Simply divide the debt you have by 24 and decide whether this is a realistic monthly repayment that you’ll be able to afford. If it is, then you be able to clear your debt in less than two years, and can go the 0% balance transfer route.
The 0% balance transfer option
Balance transfer deals typically vary from 6 months to 15 months, although who’s offering the best deal can change every month or so depending on which credit card companies want to attract new customers. Note that most credit cards have time limit for accepting any 0% balance transfers of between one and three months from when you apply for them.
One thing to watch out is the balance transfer fee. These were introduced a few years ago, starting at 2% with a cap of £50. Since then, 3% has become the typical fee and unfortunately the caps have disappeared. So a £3,000 balance transfer will set you back £90. It’s possible that balance transfer fees could rise even further, although they’ve remained at 3% for some time now
A few 6-month balance transfer deals don’t charge any balance transfer fee so, if you think you can clear your debts this quickly, they can be worth investigating.
It’s more likely that you’ll be after the longest balance transfer deal you can get. It’s difficult to say how much you’ll be able to transfer to any particular card as it depends on the credit card company’s assessment of your personal circumstances and how well you match the type of customer they want to attract.It may be you’ll need to get more than one 0% balance transfer card to cover your entire debt. If you need more than two cards then this is probably a good indication that you need a more long-term and robust solution to your debt problem.
One thing to watch out for with any balance transfer deal is to avoid making any new purchases. Very often the credit card companies will attempt to lure you in with a short-term offer. Don’t fall for this. Any payments you make will be offset against your 0% balance transfer first meaning you’ll rack up interest on your purchases at 15% to 20% a year for the entire period of your balance transfer Some cards even specify a minimum spend in the first few months to force you into this trap. Just avoid these altogether.
The final thing to remember with a balance transfer deal is to assess where you are four to six weeks before the 0% deal runs out. If you need to get another credit card, you don’t want to leave it to the last minute before applying.
The lifetime balance transfer option
If you think your debts will take a little longer to clear, then a lifetime balance transfer deal will suit you better. There are less of these around than they’re used to be, and they are slightly more expensive, but they still offer good value for money compared with other similar forms of borrowing.
You should be able to get a deal with an interest rate of around 5% to 6% a year, so they are cheaper than a personal loan and give you more flexibility to vary the payments you make each month. Some of these cards levy a balance transfer fee as well, so this can make the sums slightly more complicated.
Another difficulty can come from cards that offer a low rate but only for a limited time of two or three years. These can be your best option, if you’re confident that you can pay off the debt within the relevant offer period.
As with 0% balance transfers, the rule about not spending on these credit cards applies. If anything, it’s even more important as it could be a few years before you pay off your debt in full, so you’ll be paying a high rate of interest on your purchases for even longer.
A final point to note is to make sure you never, ever miss a repayment or exceed your credit limit. This can invalidate the entire deal, meaning you’ll be charged interest at a standard rate going back to day one.
Prepaid cards are already a big success in the US and it looks like they will soon be as popular over here. Some people are even predicting they could account for 1 in every 20 card transactions in just two years’ time.
A prepaid card operates in a similar fashion to a gift card from a retailer. You choose how much cash to put on it and then you can use it just like a credit card in a shop or on a website.
You can also use it to withdraw cash and some cards even let you take out your cash abroad. You can top up your prepaid card using a debit card, cash or at one of the many retailers displaying the PayPoint or Payzone logos.
The pros of prepaid cards
Getting a prepaid card is very simple and doesn’t require any credit checks or for you to have a bank account. Some cards even let you improve your credit rating by turning their fees into a loan and making an entry on your credit report as you pay it off. This allows you to build up a positive credit history.
As prepaid cards don’t allow you to spend more than you’ve put on them, they are useful for those trying to stick to a budget. Many cards have a minimum age of 18 but some can be used by children as young as 10, allowing them to get experience of managing money while the parent retains control over how much cash is put on them.
You can even bar them from making payment on certain undesirable websites. Companies can use them for their employees and some firms with migrant workers are even arranging for wages to be paid onto these cards, due to the difficulty these people can experience in opening a bank account
Prepaid cards can either be backed by Maestro, Mastercard or Visa. The latter two in particular are widely accepted around the world so you can use them wherever you can use a credit card. Some prepaid cards will let you use touchpads to approve small transactions under £10, similar to the Oyster Card. For larger amounts, payments are validated by a PIN number.
Foreign exchange prepaid cards allow you to withdraw funds in euros or dollars. With a competitive exchange rate, they are more convenient than travellers cheques and can offer better value than using your normal debit or credit card abroad.
Those worried about online fraud can also benefit. As prepaid cards are not linked to a bank account, you can only lose whatever cash you’ve loaded onto them.
Finally, many cards also offer discounts on certain items, in some cases as much as 15%.
So what are the downsides?
The main disadvantage with prepaid cards is the vast array of fees they charge. When you’re dealing in small amounts, they can be substantial in percentage terms. The different charging structures can also make it quite difficult to compare one card against another.
Most prepaid cards have an application fee and a cancellation fee. Some have a monthly charge or an annual renewal fee, while others have an inactivity charge which kicks in after a few months if you haven’t used them.
A fee is usually payable if you need a replacement card and many prepaid cards make a charge when you load them up with cash or use them at an ATM. Others even charge you a small percentage fee each time you use them to spend money. It’s also working checking what rates call to customer helplines are charged at, as these can be quite steep for some cards
There are couple of other downsides when it comes to regulation. When you spend more than £100 on a credit card then you are protected in case the retailer goes bust and there is a problem with the goods. This protection is given by s75 of the Consumer Credit Act. Unfortunately, this doesn’t apply to spending on a prepaid card.
This means you need to have an idea of how you’re going to use a card in order to assess which one offers the best value. Of course, this may not be easy if you haven’t had a prepaid card before!
Finally, as prepaid cards are not regulated there is a risk you could lose any money you have on the card if the company behind it was to go bust. This risk can be minimised by choosing a card backed by a well-known firm but it’s worth considering, particularly if you think you might carry a large balance on your card at times.
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June 20th 2008 - Save Money By Switching To A Cheaper Loan, Free Sample - Philadelphia Extra Light Cheese, FREE Esquire Magazine - Worth £3.99, What the experts say about falling house prices….and much more
June 12th 2008 - The Pros & Cons - Loans vs Overdrafts vs Cards vs Mortgages, Free Sample - Nivea Sun Light Feeling Lotion, Free Bag of Continental Chocolates (RSP £2.85), Which groups are suffering as a result of the global credit crunch?….and much more
June 5th 2008 - How to get the cheapest loan - insider tips!, FREE 50 ML body bronzing Mousse, 3000 Free King of Shaves Hybrid Synergy System Razor To Give Away, 50 FREE DIGITAL PRINTS from Truprint….and much more
May 29th 2008 - How To Be Clever With Your Credit Cards, Free Sample - Nivea Q10Plus Day Cream, 6 Free Disney Storybooks, Win A Trip to New York with Sex and the City!, Free Sample - Bio-Oil® Skin Care….and much more
May 22nd 2008 - How To Reduce Your Debt Using A Credit Card (A Thrifty Scot Classic), 50% off selected garden furniture at Tesco, 75% Off Boots Toys, FREE Cleo salon style fabric face mask worth £2.49, Free Complimentary Meal….and much more
May 16th 2008 - New credit card deals come onto the market, M&S Mens Clearance Sale from £2, Free Pint of Milk From Sainsbury’s, Free Race Tickets for Silverstone June 7/8 2008, Free Sample - Loreal Revitalift Deep Set Wrinkles….and much more
May 14th 2008 - Rewards based credit cards – are you making the most of them?, FREE Week’s Supply of Prescriptives Foundation, Free Thorntons Continental Chocolates worth £2.85, 4GB MP3 Player - £17.99 …and much more
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A home, for most people, is the most daunting, expensive, yet necessary purchase that they are ever likely to make, and most of those deciding to purchase a home will have to take out a mortgage in order to do so.
A mortgage is a costly, long term financial commitment, and most people will be paying off their mortgages for many years to come – at least a couple of decades in most cases. In such a long period anything can happen, and it is difficult to predict what fate has in store. This is why it is important to ensure that your mortgage repayments, and subsequently your home, are protected against unforeseen circumstances.
If you were to lose your job unexpectedly, or if you fell ill or had an accident and were enable to work, would you be able to cover your mortgage repayments until you got back on your feet? The most likely answer is that you would soon fall behind on repayments once any savings had been swallowed up, and this could quickly and easily lead to your home being repossessed.
Mortgage payment protection is a type of protective insurance that is designed for mortgage borrowers, and provides that peace of mind that if you are unable to meet your repayments due to redundancy, sickness, or injury, the payments will be covered by the insurer for a set period of time, giving you time to get back on your feet or to secure another job so that you are in a position to start earning money and making your repayments again.
Mortgage payment protection is an important type of cover for anyone that has a mortgage. You will usually be offered this type of cover when you take out your mortgage, but you should not assume that you are obliged to take this cover from your own mortgage provider – you can, in fact, shop around and find some really competitive deals on mortgage payment protection policies from a number of providers.
Even the self employed can find suitable cover, such as accident and sickness cover, without having to pay for features that they cannot benefit from, such as redundancy cover.
When you take out mortgage protection cover the cost of premiums is, of course, an important factor. However, you should not base your decision on price alone, and it is important that you read the small print in order to find out more indepth details about the policy, such as how long your repayments are covered for, and exactly what situations are and are not covered. You should check both the benefits of the cover, and any restrictions or exclusions that are in place with the plan, all of which can usually be found within the small print.
Mortgage protection cover is a valuable type of cover, and offers peace of mind for both you and your loved ones, as you will know that under certain circumstances, such as those stipulated in the policy, you will be protected against the implications of being unable to meet your mortgage repayments for a certain period of time.
Without this type of cover you could well lose your home as a result of a situation where you are not able to earn an income for a while, and can therefore not keep up with repayments on your mortgage.
You can use the Internet to compare a range of mortgage protection cover plans, as this will enable you to find a plan that suits your pocket in terms of premiums, and offers suitable protection that applies to you.
RSS Feeds
Using our RSS feeds enables to keep up to date with the fast moving financial sector. An RSS (Really Simple Syndication) feed is used instead of browsing the internet for information that may be of some interest.
The point of an RSS feed is to enable users to view new and updated content added to a website without the need to visit.
We have orginised our RSS feeds into different categories in order to sort your needs. Just copy the RSS URL to your news reader.
- credit card news
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To view an RSS feed you will need to install an RSS news reader.
Please find below a number of popular news readers:
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You agree that you shall not use the Website for illegal purposes, and will respect all applicable laws and regulations. You agree not to use the website in a way that may impair the performance, corrupt the content or otherwise reduce the overall functionality of the Website. You also agree not to compromise the security of the Website or attempt to gain access to secured areas or sensitive information.
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The Art of Communication
The inevitable truth is a university lifestyle is a very costly one. It is almost unheard of that an average student will graduate with no debt. The former advice was designed to help you limit, rather than stop, the potential financial pitfalls that embody the majority students.
However for some of you, crisis may hit. It is estimated that one in twenty students are seriously behind with their bills. If this is you, the worst path to take is that of denial - in reality, BT got it right - it’s good to talk!
Where to go for help/advice
There are professionals who can provide help and support without a disparaging tone. Most high street banks now have a specific student advisor who can help you begin to manage your debts.
Another avenue is your Student Union (tel - 0871 221 8221). Purposely designed to provide its students with all forms of advice and counseling, your S. U. is now highly likely to have debt specialists within it.
There is help available for restricted applicants through a fund called “access to learning fund” Specifically designed to help students stay in higher education and provide extra financial support, the “access to learning fund” can provide emergency payments for unexpected financial crises.
Eligibility to the “access to learning fund” is limited to:
Students with children, especially lone parents
Other mature students, especially those with existing financial commitments
Students from low-income families
Disabled students (if your disability prevents you from studying 50% of a full-time course, you will also be eligible for support from the funds, as long as you are studying at least 25% of a full-time course)
Students who have been in care
Students from Foyers or who are homeless
Students in their final year
There are also charities and other welfare agencies that can provide some form of financial support. Try contacting the Family Welfare Agency (tel - 020 7254 6251) and they may be able to assist you in your problems. You will need a supporting statement, however, from your S. U. authenticating your situation.
Ever a fan of the cliché, a problem shared is a problem halved! You are not expected to deal with this on your own. Chances are if you do, the situation will only get worse. Communication is key so, while gossiping on your mobile does cost the earth, this sort of talking could save you a pretty penny.
Tax Implications
There is another disadvantage about working, and one that will plague and frustrate you throughout life is tax. Any income above £5,035 PA (per annum) is subject to tax. The current rate is 10% on the first £2,150 above £5,035, 22% on earning between £7, 186 and £33,300 and 40% on anything above that level. There is also national insurance on top of that if you earn more than £97 in any week.
Yet on a positive note, if by the end of the tax year you did not earn in excess of £5,035 you can claim back your tax. It is a great feeling when you get that amount back in a lump sum, and this can actually be a good way to save!
Do try and limit your part time work during term, and aim to work during the holidays instead. At the end of the day, you’re at university to learn, and you don’t want to squander that for a few extra pennies.
Vacation Working
Another benefit of university life is the ridiculous length of the summer holidays. Lasting up to three months, the summer holidays are a perfect time to find work, as it won’t clash with your studies.
Competition is fierce, though - and even more so because of the influx of Eastern European natives. Employers sometimes favour these workers as they are willing to accept lower pay.
It is therefore a good idea to try and establish yourself with a potential employer before you go away to uni. Keep them informed of when you’ll be back and for how long. Chances are that if they can plan ahead, they may need you to cover for other students studying in your home town who have gone back home for the holidays.
There are a number of locations to look for vacation work and these include:
faculty notice boards
local newspapers
student union / university
jobcentre
Earn a Crust
With university life now costing big bucks, part time or vacation work is now a fundamental part of student life. In a recent study by NatWest Bank, it was found that 46% of undergraduates typically rely on 14 hours of part time work per week.
Part time working
There are several advantages to part time work. Not only does it supplement your bank balance, it can provide excellent work experience, something your future employers are looking for.
The most popular student jobs are typically bar and shop work. In catering, there is the added bonus of tips which further bump up your wage. This industry may also help cut down your night outs as most of its hours will be based in the evening.
However, this sort of work many not be the best options for those who want a good degree. Bar work often involves late nights and could affect your concentration levels. As with shop work, it will also eat into your weekends, losing vital study time.
When it comes to part time, the trick is to be balanced in your approach. No matter what state your finances, you must not work too many hours during term time because it will affect your studies. The best place to start is at a Job Shop linked to your university. The employers here are far more likely to understand your academic obligations and be more sympathetic.
If finding part time is a necessity for you, try and find something connected to your degree or the industry you wish to pursue after uni. After all that is your end goal – to land a job you like. Tutoring, for example, looks very good on your CV and shows you are responsible and organised.
To many people credit ratings are a bit of a mystery and whether you get accepted for a loan or not can seem like a lottery. Part of the reason is that the credit culture we’re used to today hasn’t actually been around that long. So the unknown nature of it all has helped perpetuate a number of credit report myths and misunderstandings.
Your credit report will also show whether you’ve had any County Court Judgments (CCJ) against you or whether you’ve been made bankrupt, are in an Individual Voluntary Arrangement (IVA) or a debt management programme. Usually these items are shown for the last six years only but it can be longer if you’ve been issued with a bankruptcy restriction order if the court believed you acted dishonestly or were to blame for your bankruptcy.
It might be tempting to pay off your loan over a longer period of time. However, this is something best avoided if at all possible. You will pay less each month but a lot more interest in the long run. Still, it’s an option if your finances are tight.
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Let’s start with overdrafts. These are most useful if you find you only dip into the red on rare occasions and for just a few days at a time. If you find that you’re spending more than you earn each and every month and you have a core overdraft that never gets paid off, then you really need to either cut down your expenses or arrange a more permanent form of borrowing.
Credit cards have evolved in the last decade and become a much more flexible borrowing tool. The proliferation of 
Personal loans
A mortgage is a very, very long term debt. The standard mortgage lasts for 25 years of course. In recent years it’s been fashionable to release money from your home by 
Personal loans aren’t quite as cheap as they used to be but they can still offer a low cost method of borrowing money. The cost of loans varies widely though. Pop along to your local bank branch and you’ll pay through the nose. Search online and you’ll get a much cheaper deal.
Most personal loan lenders offer tiered rates of interest meaning that they charge lower rates of interest for higher amounts. Typically, the lower rates kick in at £3,000, £5,000 and £7,500 and you may find that not that many lenders offer decent rates below £3,000. Among the big banks in particular, the difference in rates between each tier can be quite significant and this can lead to the bizarre situation whereby it’s significantly more expensive to borrow, say, £4,900 rather than £5,000!
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The trouble is that one credit card will rarely be able to perform both jobs. So if you’re looking to both reduce an existing debt and use a card to fund future purchases, you’ll need a separate card for each task
Using our example of a £3,000 balance transfer from earlier, let’s say you miss a repayment near the end of a twelve-month offer. If the standard interest rate on the card is 20%, you could be charged almost £600 in back interest – all for missing one single repayment
Back in April 2006, the Office of Fair Trading ruled it would investigate any credit card company that charged a penalty fee of more than £12 for these hideous crimes. By astonishing coincidence, all the major credit card companies reduced their fees shortly afterwards from around £35 to £12, where they have remained ever since.
The second option is to reclaim only the excess over £12. This is more likely to be successful but you can always fall back to this amount at a later date so many people prefer to claim the full charge as a starting point
Indeed, paying the minimum amount on a credit card can result in a debt that lasts far, far longer than the typical mortgage – and that’s 25 years. An example will help demonstrate this. Say you have a £3,000 balance with interest charged at 20%. If you pay the minimum of 2% or £5 this debt will be cleared in …… wait for it …… just over 52 years! So if you take out this credit card at 18 you’ll still be paying it off on your 70th birthday. You’ll also be charged over £9,000 in interest over this time, which is over three times the original debt in interest alone
There are a couple of tricks to watch out for here. Firstly, it’s the way the cost is expressed – normally at between 70p and 80p per £100 of cover. Put this way it doesn’t sound like much. But this is for each month, meaning that to protect a balance of £3,000 can cost you almost £300 a year
First up, the interest rate you get charged on cash withdrawals is usually higher than for normal purchases. It’s often in the region of 25% to 30% a year. Secondly, you don’t get the normal 45-day grace period you get with purchases, where you pay off your balance a month and a half later and don’t get charged interest. With cash withdrawals the interest starts racking up straight away
Which option suits you best will depend on how quickly you reckon you can pay your debt. There’s no hard and fast rule here but a good guide is that if it will take you more than two years to pay off your debts, then the second option of a lifetime balance transfer card will probably be more suitable.
Balance transfer deals typically vary from 6 months to 15 months, although who’s offering the best deal can change every month or so depending on which credit card companies want to attract new customers. Note that most credit cards have time limit for accepting any 0% balance transfers of between one and three months from when you apply for them.
You can also use it to withdraw cash and some cards even let you take out your cash abroad. You can top up your prepaid card using a debit card, cash or at one of the many retailers displaying the PayPoint or Payzone logos.
Getting a prepaid card is very simple and doesn’t require any credit checks or for you to have a bank account. Some cards even let you improve your credit rating by turning their fees into a loan and making an entry on your credit report as you pay it off. This allows you to build up a positive credit history.
Prepaid cards can either be backed by Maestro, Mastercard or Visa. The latter two in particular are widely accepted around the world so you can use them wherever you can use a credit card. Some prepaid cards will let you use touchpads to approve small transactions under £10, similar to the Oyster Card. For larger amounts, payments are validated by a PIN number.
Most prepaid cards have an application fee and a cancellation fee. Some have a monthly charge or an annual renewal fee, while others have an inactivity charge which kicks in after a few months if you haven’t used them.
The inevitable truth is a university lifestyle is a very costly one. It is almost unheard of that an average student will graduate with no debt. The former advice was designed to help you limit, rather than stop, the potential financial pitfalls that embody the majority students.
With university life now costing big bucks, part time or vacation work is now a fundamental part of student life. In a recent study by NatWest Bank, it was found that 46% of undergraduates typically rely on 14 hours of part time work per week.