Debt Problems? Credit Yourself With Some Great Advice

Filed Under Finance

Being financially aware is becoming increasingly important in the modern world, particularly in the wake of the severe and wide-reaching recession. Although many people may claim to have a good understanding of fiscal matters, research has shown that a large number of people often get themselves into debt problems they didn’t fully understand, or appreciate, what they were signing up to.

It is therefore becoming vital for the consumer to fully understand the key concepts to do with items such as credit cards, how to deal with a phishing email, what is a credit score and how to improve it. Hopefully this article, and the links within, will go some way towards helping you gain a greater understanding of how to deal effectively with your debt.

Credit scoring: What is credit score and how does it apply to me?

Before you can even get yourself some form of credit, the application you make for credit will in almost all cases be judged against your credit score. Your credit score is simply a statistical judgement on how able and reliable you are to pay off the credit under the stated terms of the agreement. The better your credit score is then the more likely you will be accepted for credit.

Since your credit score will impinge greatly on whether any form of credit is granted to you, it is important to understand what your credit score is. Fortunately there are several companies who can provide you with a detailed report on what your own credit score is. It is perfectly legal to request to see this report and to highlight any inaccuracies within it.

Unfortunately, your credit score can be reduced significantly if you regularly miss or make late payments on any credit items, make a large number of applications for credit in a short space of time, have any county court judgements against your name or if you have never had credit in the UK before. It all sounds rather daunting doesn’t it? But don’t worry – help is at hand.

In such circumstances, it is advisable to take several practical steps to help you improve credit score, such as ensuring you are on the electoral roll, making sure you do not apply for lots of credit items at once, cancelling any credit cards or store cards that you do not use and always trying to make payments on any credit within the stated time limit.

Now that you have a good understanding of how financial companies will judge your application based on your credit score, you can begin to understand the key concepts of the most commonly used form of credit; the credit card.

Understanding credit cards

One of the first thing to do with any credit card, before you even use it and no matter how tedious it may sound, is to read the contract you are signing (including the small print) and also fully understand what the APR (annual percentage rate) is in actual financial terms for you.

The credit card APR is of particular importance as this is the level of money you will be paying to the credit card company in interest on the debt alone. It is important to view this in real terms, as in actual money each month, as opposed to simply a percentage which has no real meaning compared to what is in your wallet.

For example, let us assume you have a credit card with 12 per cent APR and a debt of £1,000. We will also say your minimum repayment each month is £30 and that you make that repayment on time each month.

A 12 per cent APR on a debt of £1,000 means that you are paying one per cent of £1,000 each month in interest alone. Therefore, one per cent of your £1,000 is £10. This means of your £30 payment, £10 each month goes directly to the credit card company, with £20 used to reduce your balance.

However, should you make late payments on your account, or miss payments, then your credit card company (if you have read your small print) will be able to place your account on a higher rate of interest, thus meaning any subsequent payments you make will be subject to a higher rate of interest until you have brought the account back from arrears.

It is therefore important to understand that just because you have been judged as able to pay for a card by the credit card company, does not mean that you automatically will be able to pay. Personal circumstances can change, especially in such volatile economic times, and you need to manage your credit card wisely. Spending all that is available, then not making the repayment schedule, is an all too common mistake people make and severely impacts upon your credit score. Remember, just because the credit is there, does not mean you have to spend it.

Avoiding phishing emails

Credit card fraud, particularly online, has been particularly prevalent in the news of late and the less well informed may well think that logging on to the Internet and buying yourself a new hat may result in your card being hijacked, used and thus running up a debt of thousands of pounds!

Fortunately, there are many safeguards in place to ensure your security online. Banks, shops, credit agencies and indeed almost all legitimate online merchants will ensure the security of your cards and it seems the most common way that thieves and fraudsters gain access to private information, is through the use of a phishing email.

A phishing email is simply an email which attempts to get vital, secure information from the recipient, usually bank or credit/debit card details. Fraudsters may well attempt to make the email look official to try and procure the details and as such, it is important that you do not give out your details to any person or organisation that you are 100 per cent satisfied is legitimate. Practical steps include never revealing your pin number or password to anybody and remembering that all secure websites will be signified by a padlock symbol and a web address that starts https. You can also improve security by registering with the Verified by Visa or Mastercard Securecode sites.

And by following the simple advice in this article, you will have credited yourself with a great deal of practical, useful credit sense!