Top Ten Tips: How to get a good credit deal
That rejection can in turn have a negative impact on your credit record. So how can you give yourself the best chance of securing credit?
Peter Alderdice, banking and finance solicitor at Tods Murray, offers his top tips on getting the best deal on a credit card or loan.
How to get a good credit deal
1 Shop around
With so many deals out there, it pays to shop around. Always check a product's annual percentage rate (APR) as lenders are obliged to quote this in most adverts for loans and credit cards. The APR generally reflects the true cost of a loan, factoring in hidden expenses such as administration costs and fees in addition to the lender's interest rates. Checking it is therefore a useful way of comparing different products offered by different lenders.Comparison websites can be a helpful starting point for this information.
2 Know the risks
While the age-old warning that "your home may be at risk if you fail to keep up with repayments" might not be as applicable to unsecured loans as to mortgages, it's important to understand that lenders still have a large range of legal measures available to them to recover unsecured debts, such as freezing funds in your bank account or physically seizing your worldly goods should you fail to keep up with repayments.
3 All that glisters is not gold
Some credit card issuers offer rewards such as loyalty points, cheap tickets to gigs and mobile phone insurance. Don't be overly swayed by such enticements. For example, if you find that the loyalty points can only be used at shops that you're unlikely to visit, or your mobile phone is already covered by your home insurance, then a lower-rate interest deal with fewer rewards may prove better value.
4 If it sounds too good to be true…
…it probably is. Some lenders may offer you low-rate deals for short periods, such as six months to a year, followed by a steep rise in the interest rate. These low introductory rates are an incentive to sign up to credit agreements and are often referred to as "teaser rates" or "balloon" loans (as the cost of repaying of the loan inevitably expands) and should not be entered into without considering the long-term costs involved - rather than focusing on the obvious short-term benefits of a low interest rate
5 Read the small print
Be aware of your responsibilities as a borrower. If you don't meet your monthly payments on time or exceed your credit limit without the lender's approval, or want to repay the loan early, you may incur additional charges under the terms of the credit agreement. Additionally, details of any defaults may be passed on to credit reference agencies, making it more difficult to get loans or credit cards in the future.
6 Don't be pressurised
If you are on the receiving end of a hard-sell and are having second thoughts, remember that there may still be time to back out of the deal, even after you've signed the credit agreement. With most loans and credit cards, there is a cooling-off period during which you can cancel the agreement if you've changed your mind.
7 Check your credit score
For as little as 2, you can get a report from a credit reference agency on your creditworthiness. If the report contains errors or shows a link to a former spouse or partner whom you have separated from, you can ask the credit reference agency to correct the information.
8 Plan ahead
Don't overstretch yourself - if your interest rate is variable, rather than fixed, your monthly payments will increase if rates goes up. Consider how you might repay a loan or credit card if you lost your job or suffered a serious illness. Many lenders will offer you payment protection insurance (PPI) to safeguard against these events but you should remember that the best PPI deals are geared towards people with low-risk employment histories. So, as with any insurance, ask yourself if you really need it.
9 Extra security
If you are planning to make a big purchase, it may make sense to use a credit card rather than a loan or overdraft. Credit card issuers are jointly responsible with retailers for purchases between 100 and 30,000, so if the retailer goes bust after you've paid or the goods turn out to be faulty, you may be able to claim a refund from your credit card issuer.
10 Rebuild your credit rating
If you've had problems with money in the past, mainstream banks and credit card issuers may be reluctant to lend to you. However, there are specialist lenders who offer loans and credit cards to those with bad credit histories. The interest rates on these products are usually higher than their mainstream equivalents, but, provided that you make your repayments on time, they can help you to get your credit rating back on track.