What Is Credit?
You are only able to apply for credit if you are over eighteen. Credit enables you to purchase goods without having the cash. You can pay for goods in a number of ways, for example, store cards or credit cards. You make an agreement with the lender to pay back over a period of time, and generally, you can incur interest. Most of these options will do a credit check, so if you have a poor credit rating it is best not to apply as every time you apply for credit it goes on your record. For further information about your credit score, click on the following link:
http://www.experian.co.uk/
Store Cards
Many stores may ask you when you pay if you would like to open an account. Usually there is an initial incentive to sign up, for example a 10% discount on your first purchase. You will need to fill in an application form and they will do a credit check to make sure that you will be able to pay for your goods. The card works like a credit card, you are sent a bill every month and there will be a minimum to pay. However, in order for the card to work in your favour you should pay off the balance every month as the interest charges are high.
Catalogues
Catalogues are available by post and online. You can order goods and pay for them over a period of time. When ordering you should be aware of the different options. Some catalogues offer 0% interest if you pay for goods within three months. If you chose a longer period of time to pay back, then the interest becomes higher. In some cases the interest was 49%.
Higher Purchase
This method enables you to buy goods, and they may ask for a deposit. You then pay in monthly instalments, with interest. You don't own the goods until you have finished paying for them. You need to make sure you keep to the payments otherwise they can take back the goods. This can be a convenient way to pay for large goods, but shop around and check the prices for buying the goods outright in other stores.
Overdrafts
This is a convenient way to borrow money from your bank. If you have enough money going through your bank you should be able to apply for an overdraft.
You will only be able to apply for one if you are over 18. The bank account will need to be a current account. Basic accounts do not allow you to have an overdraft. Offering an overdraft is at the banks discretion, and they may insist on you having a particular income, and there may also be a fee. You should be aware that if you go over your overdraft you may incur a cost.
Loans
Loans can be issued from banks. Rates of interest vary from bank to bank. Make sure you do research before you take on a loan. This is usually the cheapest way to borrow money as rates are low.
Personal Lenders
There are loan companies that issue loans without credit checks and offer quick decisions, however the rates to pay back are high. For example, you could borrow £100 and pay £10 a week for 14 weeks. The final amount paid back is £140.
Interest free credit
This method enables you to buy the goods free from interest, however, should you go over your payment plan then you will incur a large amount of interest. Keep track of your payments so this does not happen. Lots of furniture companies offer this, for example, a years no payment followed by four years 0% interest.
Credit Cards
Credit cards allow you to pay for goods just about anywhere. You are issued with a monthly bill, and it is wise to pay this off so that you don’t incur interest payments. Shop around for a card that suits you, be it to transfer a debt from another card, or to apply to open an account for the first time. Look at the interest rates and reward schemes.
Social fund
These are issued from the Job Centre. They are regulated and discretionary funds are available. Regulated are Sure Start maternity grants, funeral payments and cold weather payments. Discretionary funds are community care grants, budgeting loans and crisis loans. For further information about these you can look at the direct government website http://www.direct.gov.uk/en/index.htm
Loan scams
http://www.which.co.uk/consumer-rights/rip-offs-and-scams/loan-scams There are lot of loan scams that you could come across especially if you struggle to get credit, you could be targeted. Scams could be in the form of a leaflet, or even emails. Don't be tempted by good deals; there is no such thing as a free lunch. Remember always check the small print. There are websites that enable you to check out companies. The following link offers full advice about scams, if you have been scammed there is advice on what you can do.
Companies offering you credit will want to know your details so that they can see if you are eligible. Never hand over money as a form of guarantee for a loan.
http://www.which.co.uk/consumer-rights/rip-offs-and-scams/loan-scams/loan-scams-explained/
There are many websites offering short term loans, for example, payday loans. This type of loan is for a short period from a week to 30 days. The amount you have to pay back has a high interest rate. For example, you could borrow £100 and have to pay back £120 within a week. If you are unable to pay back the loan when agreed, there are daily charges. Very quickly you will need to pay back twice as much as you borrowed.
Loan Sharks
Loan sharks are unlicensed money lenders and should be avoided at all costs. However, if you have borrowed money from a loan shark there are things you can do, should you encounter problems. The following link provides detailed information about loan sharks and what you can do. There are numbers you can call to check out a money lender to see if they are a licensed loan provider.
http://www.direct.gov.uk/en/MoneyTaxAndBenefits/ManagingDebt/DebtsAndArrears/DG_10035958
Tips
- Make sure you can afford to take on any form of credit before you do.
- Never take on a loan or a large hire purchase agreement (for example a car), if it is more than ¼ times your wage.
- Remember credit cards are not free money. You still need to pay it back.
