Money and Credit - if you borrow

If you decide that you are going to take out a loan or buy something on credit, be careful to stay well within your budget. You should leave yourself some spare money in case something unexpected happens. What if you or your partner falls ill, or the car needs repairing? If you are spending all you have coming in, you could easily get into debt.

Shop around to get the best credit deal. Get a written quotation and take it home to read carefully before you sign anything.

On this page we tell you about:

• applying for credit
• ways to borrow
• after you've signed

Applying for credit

Before they let you borrow their money, lenders will want to make sure that you are likely to pay them back. They will ask a credit reference agency to check on you before they decide whether to give you credit or not.

Did you know:

• credit reference agencies have information on almost all the names and addresses in the country?
• you have the right to know which credit agency a lender has approached (provided you ask within certain time limits)?
• you can ask a credit agency for details of the information it holds about you at any time and you can correct any mistakes?

The lender will ask you to complete a credit application form and then you will be given a credit score based on your answers. If the lender thinks you score highly enough to be a good risk, you will be given the loan or credit. If you do not score highly enough, your application will be turned down.

You will be given points for your age, income and whether you own your own home. Information about you held by the credit reference agency might affect your score. For example, they might have a record of any unpaid debts. It is the lender, not the agency, who makes the decision about giving you credit. You might pass with one lender but not with another.

Is your credit record correct?

If you think you have been refused a loan, credit card or credit agreement because of your credit record with an agency, you can check the information they hold about you.

If you wanted credit for up to £25,000 you can ask the lender who turned you down for the name and address of any credit reference agency that provided information about you if:

• you write to the lender within 28 days of your last contact about the credit deal;
• the lender used a credit agency, they must tell you the agency's name and address within seven working days of getting your letter.

There are three main credit agencies in the UK. They are:

Callcredit plc
PO Box 491
Leeds LS3 1WZ
Telephone: 0870 060 1414
http://www.callcredit.plc.uk/

Experian Limited
Consumer Help Service
PO Box 8000
Nottingham NG1 5GX
Telephone: 0870 241 6212
http://www.experian.co.uk/

Equifax plc
Consumer Affairs Department
Spectrum House
1A North Avenue
Clydebank
Glasgow G81 2DR
Telephone: 0870 514 3700
http://www.equifax.co.uk/

You can write to them at any time and ask to see the information they have on you. You can also order your file online and over the telephone from Equifax and Experian, so long as you have either a credit card or debit card in your own name.

If you write you will need to:

• send a £2 fee;
• give your full name, date of birth, address and post code;
• include any other address you've lived at during the last six years;
• give your business name and address if you are a sole trader or partnership, because the agency could hold
• information about you under this name.

Keep copies of any letters you send.

The agency must reply within seven working days to:

• ask for more information from you to help it find your file; or
• tell you it does not have a file on you; or
• send you the file.

Changing your file

You can ask the agency to change the information on your file if:

• it is incorrect, or
• it includes details about people who have no financial connection with you.

You can't get information removed just because it is embarrassing.

If you need further advice on dealing with credit agencies, contact the Data Protection Commissioner Information Line on 01625 545 745.

Ways to borrow money

There are many ways to borrow money. Check out the different options to find the one that's best for you.

Credit cards

Using a credit card to buy things means that you do not have to pay right away. Each time you use a credit card, you sign a slip of paper to say that you agree to the cost of your purchase being added to your credit card account. You will get a bill from the credit card company at the end of every month listing all the things you have bought . With most cards if you clear the balance in full before the date given, you will not have to pay any interest.

Be very careful when using a credit card. Small purchases mount up very quickly - keep a record of what you spend. If you spend more than you really mean to and can't pay it all back in time you will be charged interest.

Take great care of your card. If it is lost or stolen report it immediately. Once you have reported it you are not liable if the card is used by someone else. Prior to reporting it, you will be liable up to a maximum of £50, unless the card has been used without your permission to buy something via the telephone or internet - you'll find details of your home shopping rights elsewhere on this website.

If you do apply for a credit card:

• shop around for the best deal. Check whether there is an annual charge, even if you don't use the card;
• if you don't clear your balance within the interest-free period, you will have to pay interest. What APR does the company charge?
  the company will set a spending limit and you must not exceed that limit. You will have to make a minimum payment by a certain date every month, if you have used the card. If you pay late or not at all, you will be charged a fee, as well as interest;
• the company may offer you purchase protection and/or travel insurance for things bought with the card. Many companies give it free, others may charge. You do not have to buy this kind of insurance from the company but if you are considering it, check the charges and terms very carefully.

Overdrafts

Your bank might allow you to overdraw - that is, borrow from the bank by taking out more money than you currently have in your account.

You will be charged interest on your overdraft and possibly a fee as well. If you go over the overdraft limit set by the bank, you will have to pay a lot more.

Check what the bank charges for overdrafts and try hard not to go over your limit. If you do need to borrow and cannot repay the amount very quickly, you might be better off with a bank loan.

Ask your bank about the options and remember to check the bank's interest rate and other charges. Remember that banks don't have to quote an APR on overdrafts.

Other loans

There are many loan companies offering to lend you money. They will check your credit worthiness and may offer you a secured loan or an unsecured loan.

A secured loan means that you undertake to give the lender property you own if you do not keep up the repayments. In return you usually get a lower APR but the security is for the lender, not for you. You could lose your home.

An unsecured loan costs more in repayments but does not carry all the risks of a secured loan.

Loan sharks – these are illegal and unlicensed lenders and they will lend you money when nobody else will but:

• the interest will be very high and you may find it difficult to keep up the repayments;
• you might be forced to get a second loan to pay off the first, and so on until your debts are out of control;
• they may turn very nasty if you fall behind with your payments.

See 'Harassment from creditors' in 'if you've borrowed too much'.

Instant credit

Or 'buy now, pay later' schemes. These often look attractive but you need to look at the small print very carefully. You will get an interest-free period but after that, are you paying through the nose?

Check the offer's APR and compare it with other credit schemes or loans.

Interest-free credit

These deals let you repay the amount you have borrowed over a period, without charging you interest. They are tempting at first glance but look very carefully:

• has the trader marked up the goods so you pay more than you would elsewhere?
• what happens if you are late making a payment or don't finish making all the payments in the time set.

If you do take up one of these offers, it is a good idea to keep records of your payments so that you can prove you made them when you should have done. If the trader claims you missed a payment or were late with one and you cannot prove otherwise, it could cost you a great deal of money.

Doorstep credit and catalogues

This is a convenient way to buy for many people, especially if you find it hard to get to the shops. But check:

• catalogue prices compared with shop prices (you could always phone a couple of shops if you can't get out easily);
• the APR on the monthly payments - the instalments may look affordable but if the APR is high, you could end up paying far more than you need to.

Credit unions

If you join a credit union, you save with them for a set time and then you are allowed to borrow two or three times what you have saved. They work well for many people.

To find your nearest credit union, contact the Association of British Credit Unions on 0161 832 3694 on their website at http://www.abcul.org/

After you've signed

There are a few steps to remember after signing an agreement:

• keep a copy of the agreement;
• if you change your mind and decide you want to cancel the agreement, act quickly. Take advice if you are not sure what rights you have;
• check the statements the company will send you, showing the payments you have made;
• if you are paying by standing order from your bank, check that payments are going out as they should.

If you want to settle a loan or credit agreement earlier than planned, you will almost certainly have to pay. Check with the lender what the charges would be and think about whether the saving is worth it.

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