In a perfect world no one would need credit. People would have enough time to earn and save the money required for buying things like a car or a house. Credit cards would only be used for the benefits they can provide such as cash back rewards and other bonuses, and we would never have to pay any interest. There would be no such thing as a credit history or credit report.

Unfortunately, this is not the case, and most people need to borrow money to make these large purchases. In order to qualify for the best interest rates the market has to offer, lenders reward people with the best credit history offering them access to these products. It doesn’t stop there, as you may be surprised to learn that some employers and landlords check your credit history before offering jobs and rented property. In today’s society, there are few ways of escaping the need for credit.

How your score is generated

Whether you’re looking to take out a loan, mortgage, overdraft, credit card, contract mobile phone, utility bills or even monthly car insurance, every type of lender ‘scores’ you to predict your likely behaviour, in order to build up a profile to indicate how financially attractive you are.

In many cases if you miss a periodic bill or make a payment after the agreed date, it will have a negative affect on your score.

Banks use a number of pieces of information when coming to a decision as to whether they will lend to you, including data held by three companies known as ‘credit reference agencies’: Experian, Equifax and Callcredit.

If you have no experience with credit, you are unlikely to have a credit history, which can work against you when looking to borrow. This is because lenders want to know that you can be trusted when giving you credit, which is usually done by using your previous track record.

Building a good score

There are several ways to both improve and repair your credit score, so if you suffer from poor credit history then help is at hand.

Opening a bank account and/or savings account is your first step.

Begin using a credit card. While this is sometimes dangerous advice, using a credit card and paying the balance in full each month for at least six months gives you a head start in your credit history.

First-time credit card holders are unlikely to qualify for the best credit card deals, so you may find it easier to be accepted if you apply for cards with higher than average rates, such as the Vanquis card. Don’t be put off by these high rates, as you won’t have to pay them if you stick to the plan, and several rejected credit card applications can have a bad effect on your credit score, so keep it simple.

The most important factor when building a good credit card is to always pay your bills on time. Start using your card to pay for some of the things you would have paid for using cash or a bank card, while putting the money aside to cover the bill at the end of the month. If your credit card balance is cleared each month without fail, you won’t have to pay a penny for using the card, and you will be building up a valuable score.

If you are unable to pay off the balance in full every month, always pay at least the minimum repayment. Even if you’re struggling, don’t default or miss payments, as doing this once or twice can cause problems that haunt you for years. The same applies to your mortgage payments.
If you are have difficulties with your payment plan, the best thing you can do is speak to your lender. You may be able to change your repayment schedule rather than defaulting and could help you to avoid a County Court Judgement (CCJ) being filed against you.

The easiest and most effective method for ensuring your credit cards are paid on time, set up a monthly Direct Debit.

Keep an eye on your score

Check your credit reports periodically. If possible, it’s worth checking all three agencies, as there’s no harm in doing so and will only cost you the price of the report. checking your file doesn’t add a ‘credit search’ that a lender can see, so it won’t have an impact on your score. Make sure you check each entry in your report as there could be an error that might be causing problems. It’s a good idea to repeat your check-up every year to 18 months, and always do one in good time before making any important applications.

If you don’t like the idea of paying to see your credit report, you can get access to a simplified version for free by signing up to a monthly trials. This does require you to set up a Direct Debit or regular credit card payment, but you have the option to close your account before this period expires.

If you find an entry on your file that you disagree with, you can request it to be changed by writing to the agency. These amendments can be refused, but you are entitled to add your own comments as a ‘notice of correction’. This is likely to make future credit applications take longer, but can help in your quest for being accepted for the better deals.

If you do feel something doesn’t look right, make sure you’re concise, explanatory and factual when detailing the error, and avoid writing something too wordy.

While there is no an exact science to improving your credit score, there are a number of things you can do to sway lenders’ attitudes towards you.

Sign up to the electoral roll.

If you’re not on the roll, you’re unlikely to obtain any credit, so this is a must. You needn’t wait for the annual reminder, you can sign up at any time using the About my vote website.

For anyone that is not eligible to vote (foreign nationals, etc), it is worth sending each of the credit reference agencies proof of residency and request that a note is added to verify this.

Space out your applications.

Making too many applications in a short space of time can have a bad effect on your score, as each time you apply, credit searches are triggered. You should therefore space out applications, not only for credit but also for things like car insurance, mobile phones and other similar contracts.

Moving house will also disrupt your score, so make any important applications before you move. Your score will also be better when you’re earning a salary, so if you’re planning to take time off, go on maternity leave or suspect potential redundancy, make any applications beforehand.

Joint finances can effect your score

If you marrying or are living with someone that has a bad credit score it shouldn’t impact your finances, providing the third-party data doesn’t appear on your file.

However, if you’re ‘financially linked’ to someone on any product who has a bad score, such as a mortgage or a joint bank account, it can have an impact. Simply opening a joint bills account for flat sharers can mean you’re co-scored.

If one partner has a bad credit history, keep your finances separate where possible and the other should maintain their good score.

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In the last couple of years, savers have been given a wake-up call warning them that even though their money is in the bank, it doesn’t necessarily meant it’s safe. Now i’m not talking about the risk of your money being stolen in a bank robbery…something far less obvious – banks failing.

The scare surfaced after Lehman Brothers – a global financial services firm, declared itself bankrupt in 2008 marking the largest bankruptcy in U.S. History.

Concerns were again raised after Icesave – an online savings brand owned and operated by Landsbanki, collapsed affecting hundreds of thousands of customers and businesses. In the UK, Icesave’s marketing slogan was “clear difference”, offering its customers three types of savings accounts: an instant access savings account, a cash ISA, and a range of fixed rate bonds, paying interest rates of more than 6%. This was enough to attract over 300,000 accounts in the UK alone. (more…)

While the Bank of England base rate remains a the lowest level ever recorded – at 0.5%, most savings accounts offered by banks and building societies pay derisory rates of interest.

At the end of 2009 the average branch based instant access savings account paid a measly 0.17%, which a notice account wasn’t paying much more than 0.33%.

However, if you look at the top 10 savings accounts in the Which4U comparison tables, you will notice that the best rates are offered on fixed rate bonds, so if you’re willing to lock your money away for a fixed period of time, you could be earning up to 4.75%.

How do they work?

A fixed rate savings bond is a bank account that allows you to earn high interest rates in return for agreeing to leave your money without making any withdrawals until the agreed term is reached.

Returns on the investment are limited to the interest paid on the account, which can be calculated before the bond is opened, providing a predictable income.

Fixed bonds differ from standard deposit accounts as the interest rate is guaranteed to remain the same throughout the fixed period. The terms differ, with rates to reflect the term, but they usually last from between 6 months and anything up to around five years.

The interest accumulated every year is added onto the balance and paid on maturity.

It is generally possible to access your funds in an emergency, but doing so would result in the account being charged with a loss of interest.

Banks and building societies offer more attractive rates of interest on this type of investment because it gives them the ability to gain access to secure long term deposits.

Currently, the best five year fixed rate bond pays a rate of 4.75% (Nationwide bond) per annum compared to the best instant access accounts offering 2.80% (Halifax).

You could argue that rates will change over the next 5 years, so you need to consider this when making a decision on the term, as you could find that you are earning less than the current instant access accounts are paying.

Should you consider them?

Savers should consider a number of factors before deciding whether they should invest into a bond and the term they choose.

When will you need the money?

Avoid being drawn in by an attractive rate without fist making sure that you can do without the money until the bond matures.

The cost of borrowing money is usually greater than the return you will get from the bond, so this is a no no.

Are interest rates likely to go up during the term?

This can be a difficult call. The answer is simple, people can make predictions to the direction of interest rates, but no one knows for sure.

But considering how long the Bank of England base rate has stayed at 0.5% (since March 2009) and the fact that some economists believe it will remain this low for another 12 months, savers can be more comfortable with getting good rates for just one or two years, giving them the flexibility to reinvest again in a few years time.

What do you give up to qualify for a better interest rate?

For the better return, savers do give something up – the access to their savings for a set period and access now to the interest earned.

So for savers who need an income now these products may not be suitable.

There is also the possibility of losing the chance to use the money more profitably, perhaps by investing in other assets such as equities, or paying off a mortgage.

Investment bonds

Investment bonds are fundamentally different and involve investment not saving.

The policies are typically sold by life assurance companies which allow you to invest in a variety of funds (either investment trusts or unit trusts) managed by professional investment managers.

Bonds are usually used for long term capital growth but can also be used as a means to generate income.

Investment bonds tend to invest in a wider range of assets than savings bonds, including UK and overseas equities, commercial property, fixed interest securities, and cash- like investments.

In most investment bonds, investors can choose the amount in which they wish to invest into and can change the weighting of their investments several times a year.

Taxation

For tax purposes, investment bonds act as life assurance policies, therefore subjecting them to tax on the returns gained.

It is commonsense that more and more people have unpaid and accumulated financial obligations that lead into people finding themselves in debt. As a consequence, creditors frequently call them in order to pay up. But similarly, we can talk nowadays about more and more complaints regarding abuses coming from the collections agencies. This is because people who are in debt are vulnerable, they are between wind and water, and they generally do not know how to handle abusive debt collectors. So for those who are annoyed with harassing debt collector calls, who feel pressured or even threatened, there are some useful tactics to keep in mind!

(more…)

With mortgage loans, borrowers can purchase real estate without the need to pay the full value of the property immediately from their own resources. Mortgages have an interest rate and are scheduled to amortize over a set period of time.

(more…)

Savers seeking the most effective way to save should not only build up a tax free savings pot using ISAs, but also be aware of the rates paid on balances to ensure they are earning the best ISA rates. bmi credit cards

This usually means transferring cash ISAs to get a better deal, but what are the rules around moving your cash between ISAs?

Which4U is aware that many savers are either baffled by the rules around ISAs, or not given useful information from providers. (more…)

To mark the start of the 2009 National Consumer Week we have focussed on a handful of laws that you may find extremely useful when buying products and services, especially during these turbulent times.

You may or may not  have noticed it, but consumers are fighting a war against the firms they have to deal with after falling victim to mindless companies, whether it be due to faulty products that need replacing, or out-right poor service. (more…)

Investment bonds have proven to be a hit amid the financial crisis, after the Bank of England cut its base rate to 0.5% – the lowest on record, forcing banks to reduce the amount of interest paid on regular savings accounts.

Investment bonds can vary significantly, but the general rule around them is that in exchange for some kind of risk, they provide the potential to earn higher returns that those offered on standard savings accounts, as your investment is not generally tied to fixed interest rates, but on the success of the area you invest in. (more…)

How to save your money

By the time you hit 30, there are a number of steps you should have or are planning to take to build on your financial knowledge to secure your future finances.

Life has a way of passing you buy, and before you know it you’ve lived out your 20s and suddenly you’re a fully fledged adult.

Welcome to the 30s club! Up to now, you have probably learned enough about yourself and your finances to know at least the basics for managing your money. Now it’s time to build up the foundations of this knowledge and experience to set yourself up for the future.

There are a number of steps that should be employed by anyone in their 30s towards a better financial future. 10 principles have been outlined below that can help you in reaching your retirement goals:

1. Your first objective should be to clear all non mortgage debt. In Your 20s you are likely to have far less financial responsibility, but 30s tend to bring new financial obligations such as a family to support and a mortgage to repay. One of the most effective ways of freeing up your cash is by paying off your debts. It is assumed that you will have paid off any credit card debts over the last decade, but if this is not the case then this should be your priority.

The most effective way to pay off credit card debt is through transferring the debt to a credit card that has a 0% balance transfer period. This will allow you to set up a payment schedule to clear the debt over the 0% period, without incurring any more interest. Most credit card providers will charge a transfer fee of around 3%, but this is likely to be significantly lower that the high rates you’re currently paying.

After these high interest debts have been cleared, focus on clearing any student loans and other forms of debt.

2. Lose the debt habit. It’s no good clearing all of your debts if you go out and acquire new ones.
One way of avoiding debt is by saving up for costly purchases such as new car or kitchen appliances. Now you’re debt has been cleared, you could deposit the money you would have otherwise been paying in interest and repayments into a high interest savings account. For example, you have just made your final monthly repayment of £250 on a loan, rather than simply giving yourself more disposable income, continue to make the payments but into a bank account. After a year you will have saved £3,000 without even noticing any difference in your outgoings.

3. Start taking a serious view to retirement. Most people don’t plan for their retirement in their 20s. This wasn’t the time to start investing and you may not have been paying into a pension fund. Now it’s time to start planning for your future and looking at all of the possibilities in terms of retirement and a pension fund.

This is everything, from what age you wish to retire; how you would like to live – how much money you will require, all based on a realistic goal that you can reach through what can seem like a lifetime of investing. Time is still on your side, so use it before it passes you by and makes things difficult. The earlier you start the better, and the more chance you will have of enjoying a comfortable retirement without having to give up too much until then.

Before you begin to think about saving for your children’s futures, e.g. education expenses, ensure you have sorted yourself out. You can easily take a loan out to pay for college, but not for retirement.

4. Don’t put all of your eggs in one basket. You should diversify your investments to ensure your cash isn’t tied up in one sector, as markets have been known to crash and this could leave you with nothing.

It is generally recommended that you should try to invest around half of your portfolio to large companies, split evenly across growth and value.

You may want to look into putting some of your savings into fixed rate bonds. These accounts allow you to fix the interest rate paid on your balance for a specified period of time, allowing you to predict how much the investment will earn. This is also good as the base rate is on a downward path, as a variable rate savings account would reflect these changes by reducing the rates. By fixing the rate you can protect yourself from these reductions. There is an element of risk involved in fixed rate bonds, as rates could also rise through the life of your account, which would leave your savings subject to a lower rate than that offered to new and variable rate customers.

5. Every day’s a school day. Continue to learn and never stop investing in yourself. You will begin to widen your investment knowledge, and it is this that will help your earning power through informed decisions.

6. Protect your assets. There is only so much planning you can do to prepare yourself for the future and even what appears to be a full-proof financial plan can be derailed as a result of unexpected cost. It can pay off to cover yourself from every angle, allowing you to survive every “what if” scenario. This can be as simple as taking out adequate insurances to cover your possessions and even your life.

It is also a good idea to save for an emergency fund, covering yourself in the event of a job loss, medical emergency or anything else that life may throw at you. This should be enough to cover all of your outgoings for up to six months. This may all be too much to take on, so you may wish to start saving a small amount towards this fund so you can build up a more substantial amount over a time.

7. The simple life. Saving your gratification for a distant future might not be fun, but adopting a simple lifestyle is an effective way to reach the goals of today, while still achieving your long-term goals. Take a close look at all of your regular outgoings and spending to identify areas that could be trimmed for the cause. Small sacrifices can lead to big rewards.

8. Write a Will. This may seem like a hasty step to take, but if  the unthinkable happen, you would have no choice in where your possessions go. A will can ensure that your wishes are met, allowing you to specify who would be entitled to your assets.

If you’re a parent to children under the age of 18, think about who could take care of them should something happen to yourself and the other parent. This can also be specified in a will.

9. A price on your life. If you have somebody who depends on you financially, it is important that you consider taking out a life insurance policy. If you died, you would want to be sure that they were financially secure. At 30, there are some great life insurance deals available to you. The premium can be reduced based on certain elements, such as not smoking.

10. Tax free savings. An effective way of saving towards a better future and taking advantage of your tax free savings allowance is through cash and investment ISAs. Each year, all individuals are entitled to an ISA saving limit of £7,200, in which they can invest cash and investments. There is a £3,600 limit on cash ISAs within any one tax year, but you can invest the full £7,200 in a stocks and shares ISA, with a Capital Gains Tax (CGT) exemption of up to £9,600 per year.

Protecting your money

Fixed rate bonds (otherwise known as fixed term bonds) are savings accounts designed for savers that are willing to take a little bit of a gamble with their money, without the actual risk of losing any of their original investment being lost, subject to the banks performance in line with the compensation limits offered. As long as your investment falls within the compensation limit provided by the bank or building society, the only thing you are gambling with the the interest you make.

Fixed term bonds feature many of the characteristics found in an instant access savings account, but with two main differences. Investors are expected to lock their savings away for a fixed period of time and the interest rate offered upon opening the account will also remain fixed throughout the duration of the bond.

Fixed term bonds usually offer better interest rates than instant access accounts, but this is not always the case, particularly when looking at bonds with longer terms. The reason for this is that these carry more risk to the banks as over the course of the term, the Bank of England could make significant interest rate cuts which would mean they would be paying over the odds for what they borrow.

As instant access bank accounts are generally the first to pass on rate changes, it is very important to be conscious of any changes. On the other hand, fixed term bonds provide peace of mind as rates will remain the same for the life of the bond.

During the last few months of 2008, The Bank of England cut its Base rate on several occasions, bringing it from 5.5% in October, to just 1.5% at the beginning of January 2009. This means that if you were lucky enough to open a fixed term bond account before these changes, you would now be benefiting from rates well above those currently offered on today’s market.

Some economists have predicted that rates will continue to fall over the coming months, so now could be a good time to apply for a fixed term bond account to fix yourself in on the best rate available.

However, there is another side to the coin, and this is where the gamble comes in. As well as the possibility of falling rates, you have to remember that it is equally possible that rates could rise, which would mean that the rate you are fixed at is below rates offered to new customers and instant access accounts. Before deciding on the type of account you wish to use, it is worth considering looking into the direction rates are predicted to take for the near future.

If you decide to put your savings into a fixed term bond, it is always a good idea to keep some of your money aside as backup. Circumstances often change without warning, and making early withdrawals to your bond can be difficult and is likely to incur loss of interest, so having a safety net will help to avoid you requiring access to your fixed term account.

Always ensure you are familiar with the compensation scheme offered by your proposed bank or building society. For more on compensation schemes and protection levels see Which4U’s Top Ten Savings Tips.

There are a some great fixed term bonds available, with rates well above the inflation rate and the Bank of England Base Rate, but these accounts may not be available for much longer, as it is expected that rates will fall further over the next few months. Compare the best deals at www.which4u.co.uk and apply for your fixed term bond today!