Thought about your credit rating lately?
We're on the cusp of coming out of one of the toughest recessions the country has ever seen, and there's still plenty of recovery to go through before many of us are feeling comfortable again. Depending on who you listen to, there are some financial experts who won't quite draw a line under our economic woes, with some still warning of a second recession, or a double dip.
The recession has naturally impacted people in different ways and particularly with regards to borrowing, some people inclined to see it as a catalyst to sorting out their finances and paying off their debts early and taking no more on, and others who have chosen to put off moving house for example and borrowing to do home improvements instead.
If you choose to take a loan, it's crucial you shop around as rates vary dramatically. Despite the Bank of England base rate having decreased from 5.0% in August 2008 to its current sustained low of 0.5%, the majority of lenders have increased the interest rates they offer on £5,000 loan balances. Currently only six lenders are offering rates below 9% APR (typical) on a £5,000 loan compared with 14 lenders who offered a rate of less than 9% in 2008 (source: Moneyfacts).
Of equal importance is giving some thought to your credit rating - do you even know if you have a good credit rating?
Most lenders will check your credit history and credit score when assessing your loan or credit card application. Your credit history gives details of financial agreements you have taken out in the past and information on how you repaid the debt. So if you have previously held loans or credit cards and made payments when they were due, this will reflect well. If you have a history of missing payments or avoiding debts, then you'll find it harder to get good-value credit. Lenders tend to use one of three agencies: Equifax, Call Credit or Experian and you can get a copy of the credit record they hold on you for a £2 fee.
While your credit score takes account of your credit history, it also includes information on your overall financial health. So, if you own your own home and have been on the electoral roll for some time, your score should be higher than someone who has moved regularly between rented accommodation without updating the authorities. It also looks at how much finance you already have access to, and a wealth of other information.
So to make your records as attractive as possible to potential lenders, it's vital to maintain your payments. Any missed payments could end up on your file and stay there for several years. Lenders also look at your other financial options, so if you have credit cards that you don't use, it may be best to properly close the accounts.
Even if you are in a position to comfortably pay all your outgoings without a problem, it's still worthwhile keeping an eye on what you're paying and at what rate. Reducing your payments could allow you to pay off your debts more quickly, and possibly free up credit facilities for future needs. Some people choose to consolidate their debts into a single personal loan - often these have lower interest rates than credit and store cards, which means the same monthly payment reduces the debt more quickly. They are not for everyone, however, and it's always worth thinking hard about taking on new financial commitments.
Finally, don't forget to shop around! If your credit card rates are increasing, you may be able to get a better deal somewhere else. If you're looking for a personal loan, your existing bank will not be the only lender to offer the product, so do your research to make sure you're getting the right loan at the right price.
Issued by Sainsbury’s Finance