Money mensch: How to get credit in a monster crunch

By Martin Lewis, November 12, 2009
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How’s your credit score? Probably not as good as you imagine.

Since the credit crunch started, everyone has been knocked down a level. And with credit scores playing an ever bigger role in getting a mortgage, credit card, loan or even contract mobile phone, it has never been more important to manage yours.

You need to credit-build
One of the best strategies to create or rebuild your credit score has always been to get a credit card, even at a hideous interest rate, and use it responsibly. This means spending a little on it each month and, crucially, always repaying in full each month so you don’t pay any interest. This way, your file shows you can be trusted with any new lending. But getting a card in the middle of a credit crunch can be a problem. To try and square this circle, a host of “bad credit scorer” cards have appeared. We could call them credit reject cards, if you like. They are designed to manage the market for people who can’t get credit.

Now let me make this doubly clear; you should not be using these for borrowing — their interest rates are abominable.

The Best Reject-Cards
With all the credit cards, ensure you set up a direct debit to repay it in full each month or the interest will cost a lot.

The overall winner, but tough to get, is the recently launched Capital One Progress, which starts off giving a nasty APR of 34.9 per cent. However, make your payments on time and this rate drops by 5 per cent roughly every six months. After one-and-a-half years, you will pay 19.9 per cent APR.

So even if you can’t get other new credit, if you’ve seen all your interest rates hiked up, at least you will be able to shift even more expensive debts to this by no means good, but at least not nightmarish, 19.9 per cent.

Now here’s the rub. This Capital One card is described as being for people with good credit scores. Why on earth would they want it? Well it proves how difficult getting new credit is — even those with good credit scores can’t. Admittedly, “good” is their term; I’d say it’s for OK scorers. You can’t get it if you’ve ever had an official default notice or County Court Judgment (CCJ) against you, but a few missed payments or going beyond your limit is fine.

If you’ve defaulted
If you have had defaults, there are some cards to try such as Barclaycard’s Initial at 27.9 per cent APR; if you have had CCJs too, there is Capital One’s Classic at 34.9 per cent or the Aqua Card at 35.9 per cent.

Again, let me reiterate, these cards are purely a mechanism for improving your score. And do not apply for all of them together, as every additional search can have an impact on your score.

The last resort
If ever these monster rate cards reject you, don’t worry. The Cashplus Creditbuilder pre-paid card costs £5 and, as you can’t borrow on it, you just pre-load it to spend, there is no credit check, so anybody can get it.

The clever bit is that unlike other pre-paid cards you can voluntarily opt to pay a fee of £4.95 a month on it credit-builder option. This is then structured so that technically they are lending you the money. As long as you pay it every month for a year, the information will be passed to the credit reference agency Experian as if you had successfully borrowed.

Of course, it will cost you £60, but should have some impact, maybe even just enough to allow you to get one of the cards above and keep rebuilding.

How much to spend
Don’t feel the need to spend too much; £50 a month should be fine. Once you successfully get one, it can be worth trying to get a second and spending £50 on that two, as it should improve your score even more.

The amount isn’t crucial, it is more the fact that you are successfully managing two cards. Yet never, ever miss a monthly payment or all your good work will be undone and you could find yourself in a worse position than when you started.

More credit score tips
Each lender scores you differently, but the following will usually help.

Check files after rejection
Don’t apply for anything else until you’ve asked for your credit file and checked it for errors. If the reason for rejection is there’s an error on your file, and you keep applying, even once the error’s corrected you may find you’re still being rejected because of the number of searches.

Ensure you’re on the electoral roll
If you are not on there, it’s unlikely you’ll get any credit. If you’re not eligible to vote because you are a foreign national, send all the credit reference agencies proof of residency and ask them to add a note to your file.

Check your addresses
Ensure all your outstanding accounts have the correct contact details.

For a detailed guide on improving your credit rating and how to check for free, see www.moneysavingexpert.com/creditrating

    Last updated: 10:03am, November 12 2009