Credit cards are hard to come by, especially if you have previously missed payments

IF YOU’RE looking for cheap finance – and many people are at this time of year – there are some very low rates on offer from banks, building societies and credit card companies.

One problem though – unless you’ve got a near perfect credit history – your application is ­likely to be declined.

We are bombarded with payday loan adverts, on television, online, in newspapers and on high street billboards, so it’s no surprise that these have become the first port of call if the bank says no.

But just because your credit record isn’t up to scratch, it doesn’t necessarily mean you have to turn to a pay-day lender and face crippling interest rates of up to 4,214 per cent APR.

Although most mainstream credit card companies will turn you down flat if your history shows that you’ve missed a ­couple of credit payments, there are credit cards out there that give you the chance to repair your credit record

Credit cards from Luma (powered by Capital One) and Vanquis allow some people who have struggled with debt previously or who have a limited credit history a genuine opportunity to turn things round.The interest rates are quite a bit higher than standard credit cards, but are a fraction of those charged for short-term pay-day loans. Vanquis charges a representative APR of 39.9 per cent, and Luma 35.9 per cent.

To put the costs into perspective, borrowing £400 on a credit card at 39.9 per cent APR will cost you £13.55 in interest for one month – the same sum ­borrowed from Wonga will set you back £125.48.

To rebuild your credit status, you need to demonstrate a ­history of using a credit card in a responsible manner, so if you use the card and make payments on time EVERY month then over time your credit score will improve.

You won’t turn round your credit rating overnight, but it’s a chance to prove that you are financially responsible and in time could give you the option to borrow at lower rates offered by banks and building societies.

Another more palatable option is a relatively new provider called Amigo loans, offering credit of up to £5,000 at a representative APR of 49.9 per cent.

To qualify for an Amigo loan you need to find a creditworthy friend or relative to act as ­guarantor for your loan. This means that if for some reason you are unable to pay, then the guarantor becomes liable for the outstanding balance.

Again the interest rate is far cheaper than going down the pay-day loans route, plus Amigo loans are flexible, in that you are able to make additional ad hoc reductions without penalty.

Amigo also advises the credit reference agencies of your repayment history and thus can help improve your credit score.

Another avenue worth ­exploring is borrowing from a local credit union. There are more than 400 credit unions across the UK with over a million members and these local financial co-operatives, owned by the people who use them, offer guidance and help you try to manage your finances.

Although you’re unlikely to be able to borrow more than £1,000 until you’ve demonstrated your ability to save, it’s an excellent way to manage your money for those who are excluded from borrowing from high street banks.

Many credit union loans will cost you no more than 1 per cent a month (12.7 per cent APR) on the reducing balance of the loan.

Some credit unions also offer the Credit Union Current ­Account. which comes with a Visa debit card with ATM ­access, or pre-paid Cards, which can have your savings or loans ­loaded onto them for you to use at ATMs and in shops in the usual way.

To find a local credit union visit www.findyourcreditunion.co.uk or phone [phone]

If your finances are already difficult to manage, a high ­interest pay-day loan could see you end up in a much bigger ­financial mess, so only consider it if it’s absolutely essential and as a last resort.

• Andrew Hagger is a personal finance expert at www.moneycomms.co.uk