Credit Cards – 0% on Balance Transfer – interesting article

by ⋅ Leave a Comment

I just read a very interesting article on balance transfers over at Rob Lewis’ Money Watch site.

Many people have built up outstanding balances on credit cards over the last few years, using their cards to meet day to day living costs, as well as more expensive purchases.

What many don’t realise though is that they do not have to keep the balance of their card with that same provider. By “transferring” to another credit card it can be beneficial in terms of maybe a discount or 0% interest charge for a period of time.

With Bank of England Base rates so low at the moment, and with the slow down in economic activity many people are feeling the pain in terms of the interest rate they are being charged for the outstanding credit card balances.

If you have several credit cards with outstanding balances then check out our “debt snowballing” article

Prepaid Credit Cards

by ⋅ Leave a Comment

Introduction

Prepaid credit cards are far from a new idea – the principle has been around for many years with such items as prepaid electric meter cards etc all working on the same principle.

In essence what a prepaid credit card offers is the facility to make purchases and payments through the Visa or Mastercard system, in the same way as someone using a “normal” credit card would – this is the same for purchases both in stores, shops, restaurants etc. as well as with online shopping on the internet.

They have a number of benefits over and above a “normal” credit card and these features and benefits will be considered below: –

Available to Almost Anyone

One of the downsides of a normal credit card is the need for the applicant to pass a credit check with a Credit Reference Agency – if you’ve got or have had a history of arrears, CCJ’s or Bankruptcy then obtaining credit can be very difficult if not impossible. Applying for a prepaid credit card normally does not require a “credit check” as the applicant is not actually applying for credit.

Top up direct or through outlets

Money can be added to your card either through a standing order from your bank account on a monthly basis, or through cash deposits at any number of retail outlets, including Post Offices. Check where it is possible to top-up your card before completing an application.

Help with Budgeting

By depositing a fixed monthly sum onto your card you are effectively limiting the amount of money available to spend through that card – remember, you are not borrowing any money from the card issuer. Say for example you are trying to reduce expenditure in one particular area – set a monthly budget for that area of expense and set this as your regular top-up – once the money has gone you will have reached your target for that month.

Different Types Available

It is possible to choose from several different types of card – you may have a personal preference between Mastercard, Visa or Maestro. These days the differences between Mastercard and Visa are fairly small – Mastercard tends to be more widely accepted in America with Visa more popular in Europe – both cards are normally accepted at most outlets.

Increased Security

Carrying a pre-paid credit card is a good idea in our opinion, preferable to carrying lots of cash. In the event of loss or theft simply report this to the card issuer as soon as possible and they should be able to cancel/block the card to limit the amount of money which you could lose through someone else using the prepaid card.

Ideal for Travelling

One idea which might be of interest to you is the use of a prepaid card whilst travelling or on holiday, either in the UK or abroad. No matter where you go in the world the card could be topped up by a friend or relative based here in the UK. A cheap alternative to other forms of transferring funds abroad – simply ask your prepaid card provider to issue a second card on your account and pass it to a friend or relative who can then use that card to top up cash here in the UK.

The great thing about this idea is that if you deposit money to the card here in the UK through certain outlets then the funds are credited to your card almost instantly! Check with each provider before applying for a prepaid card that they offer this second card facility and that they allow instant top ups through selected retail outlets.

Ideal for Shopping Online

A prepaid card can normally pay for itself in no time – especially if you are keen on online shopping – it’s common to be able to make great savings online through shopping around different retailers. Often though people are concerned about security with online shopping – particularly with “phishing” and other scams being carried out. With a pre-paid credit card though the amount of money at risk is limited to the amount of cash that has been credited to the card.

Ideal for Business Use

Many companies need to issue their staff and employees with credit cards. With a prepaid card it is simple to limit the amount of funds available for use by each employee – a different amount could be credited to each credit user on a monthly basis making budgeting more straightforward for the company.

Debt-snowball – repay your debts quicker

by ⋅ Leave a Comment

Debt-Snowball – Repaying your Debts Quicker

It is common for people to have more than one debt – for example you may have a mortgage, a personal loan, a few credit cards, hire-purchase etc. Nobody likes debt, unless it is being used as leverage for an investment, and for the majority of people the quicker it is paid off the better!

Snowball those Debts

Consider a hypothetical situation whereby you have say 3 debts as shown in the following diagram –

debt-example

In this example the borrower owes a total of £105,600 and is paying £759 per month for this benefit. There have been other methods mentioned on the internet whereby you effectively repay the smaller debts first. I can understand the psychology of this approach – it is easier to cope with one large debt than several smaller debts. In the example above, any surplus funds would be used to pay off Credit Card 2 first – this debt could be cleared fairly quickly based on the amount remaining outstanding and in terms of “cost” it carries an interest rate of 16% making it the second most expensive debt.

The Logical Approach to Debt Repayment

Regardless of the amount of debt outstanding let’s focus on the Interest Rate.

The interest rate tells us the “cost” of owing that amount of money. For example, with Credit Card 1 the interest rate is 19% – therefore for every £100 that we owe to that lender they will charge us £19 for those 12 months – it’s as simple as that.

To demonstrate the logic of this, consider a situation where you owe £100 to each of Credit Card 1 and Credit Card 2 in the above example – Credit Card 1 is “charging” you £19 per year for this privilege and Credit Card 2 is charging you £16 per year. If you had £100 available to repay one of those two credit cards which one would you choose? Logic dictates you repay the more expensive one first.

Conclusion

Therefore, the logical conclusion is to check all your debts and see how much they are costing you each year – check carefully as interest rates have a nasty habit of increasing beyond what you THOUGHT you were paying over time. Once you have drawn up a “league table” maximise all efforts to repay your most expensive debt first, making just minimum payments on the remaining debts – as soon as the first (most expensive) debt is paid off move on to the next one.

Action

Make a list of all debts and interest rates – make a concerted effort to repay the most expensive ones first. Maybe consider transferring any outstanding balances from higher charging credit cards to those with a nil or lower introductory balance allowing you to make greater savings and, thereby, repay your debts quicker.

5 Tips for First-Time Buyers

by ⋅ Leave a Comment

It can sometimes seem impossible for first-time buyers to get a foot on the property ladder, especially considering property prices in the UK today.

Here are 5 tips for first-time buyers to help them with their search for a new home: –

1. Save as large a deposit as possible.

In the current credit crunch the days of 100% mortgages seem long gone. To give yourselves a fighting change in the current market you need to aim for a good deposit. A minimum 5% is a starting point, 10% is much better.

What is the reason for this? Any lender wants to see that you are willing to share the burden of risk inherent in buying a property. By putting down a deposit you are opening up the market of mortgages available to you. For example, the choice of mortgages available to a first-time buyer with 10% deposit is far wider than for someone with just a 5% deposit.

2. Check your credit record

When you apply for a mortgage the lender will carry out a “credit check” and also possible calculate a credit score for you. A credit check will be carried out with one of the 3 main Credit Reference Agencies in the UK. The lender is looking to see what your credit history has been like in the past. Are you good at meeting your financial commitments? Are you a safe bet?

We recently wrote an article on checking your credit record – How to Check your Credit Record

3. Are you a good bet?

The other area which a lender will want to consider is your ability to repay and service the mortgage going forwards. To this end they will be concerned with your employment position. How long have you had your job?

Are you self-employed (if so, do you have accounts showing the levels of income and profits you have generated?) Are you currently in the probation period with a new employer? Are you on notice of redundancy?

All these are areas and questions which you should ask yourself. For example, if you’re considering moving to a new employer could you wait until AFTER you have obtained your mortgage – you are more likely to receive a mortgage offer today if you have worked for the same employer for say 2-3 years than if you have recently moved to a new job and are within a probationary period.

Likewise, if you’re considering self-employment, can this not wait until you are settled in your new home, having obtained mortgage funding etc?

These are all lifestyle choices you need to consider carefully before taking action.

4. Are you on the Electoral Roll at your current address?

The lender will be interested in ensuring you are a “real person” – therefore when you check your credit records make sure you are currently registered on the Electoral Roll at your present address.

To register on the Electoral Roll you need to register with your Local Authority – more information here.

5. Do you have a credit history?

One problem many first-time buyers face is that they do not have a credit history – making it difficult for a lender to check whether they have been able to manage their finances in the past. Banks and credit card companies report account activity to the Credit Reference Agencies.

One tip I have heard many times is for young people to take out a credit card and use it on a regular basis – ensuring they pay of the balance each month in full to avoid interest charges – the credit card company will then report that this account has been maintained well on your credit record and this may increase your chances of being offered a mortgage.

Warning – you must remember that your home is at risk if you fail to keep up payments on any mortgage or loan secured on it.

Always seek independent financial and legal advice before committing to a mortgage or any secured debt.

How to Check your Credit Record

by ⋅ Leave a Comment

Credit Referencing – When you Apply for Credit

Many people don’t realise but whenever you apply for credit, whether it is a mortgage, credit card, monthly contract mobile phone etc, part of the application process is that you give permission for the lender to check with a Credit Reference Agency (CRA) into your credit history.

Based on the information stored there, together with the information in your application, they make a decision as to whether to offer you credit or not.

Shrewd Tip – it is shrewd to check your credit records before applying for large loans such as mortgages, car loans etc – to be refused credit as a result of an error on your credit record can be heart-breaking – it could mean losing the purchase of a new home – check well in advance to make sure there are no nasty surprises lurking in your credit record.

What is a Credit Record?

Most adults in the UK will have a credit record – this credit record contains information such as

Name
Address history
Electoral Roll listing
Details of individual agreements – e.g. credit cards, loans, mortgages, current accounts etc.

In respect of each “entry” it will contain information on the name of the lender, the credit limit, the current balance, whether the monthly payments are up to date, whether there have been any arrears on the account etc.

Why should I be interested in this?

As with all things, information stored in these credit records can be incorrect and therefore it is wise from time to time to obtain a copy of your credit records to check that no errors are showing which could be detrimental to any future application for credit.

How do I obtain my Credit Report?

There are 3 main Credit Reference Agencies in the UK and they are required by law to provide you with a copy of your record – a statutory report – on request.

They can currently charge a fee of £2 and access to your report is available under section 7 of the Data Protection Act 1998.

Some of the companies offer additional services such as allowing you to access your records on line – for this they charge additional fees – but if you only wish to check your current report then you need to apply for a copy of your statutory report for which the current fee is just £2.

Below are details of how to request a copy of your credit report from each company:

Experian

You can obtain a copy of your credit report by visiting their site here and downloading and returning their application form.

Equifax

You can obtain a copy of your credit report by visiting their site here. Again, download their application form, complete it and send off with your cheque for £2.

Call Credit

Visit their site here.

Remember – to just obtain a copy of your credit record you need to request the statutory report for which the fee is currently £2. We have not linked to their application forms as the version or location may change – you need to search their sites for the application forms.

What should I do when I receive my report? 

IMPORTANT!

Firstly read through it and the accompanying booklet explaining about your credit record. Then go through it to check that all the entries are correct.

If any of the entries are incorrect then you can either contact the Credit Reference Agency or the originator of the information (e.g. credit card company) and explain what is wrong, why it is wrong and ask them to correct it.

If this fails to correct the situation then it would be shrewd to make a second request for the information to be corrected – and it would also be shrewd to send this request by recorded delivery to prove they have received the request. 

In the event that they fail to correct the mistake then you are entirely within your rights to make a complaint to the  Office of the Information Commissioner.

We would welcome your comments on this article, together with an hints or tips you could pass on to other readers in respect of your own experiences with credit reports, credit report agencies and the Information Commissioner.