What to Consider When Looking For Credit

Needing money in your hand at short notice can be stressful, especially when it’s an emergency and you need the money very quickly. Who do you go to? What if friends and family can’t help? Borrowing money under a pressured situation can make it difficult to make the best decision for you and your situation. You need to consider all of your options carefully before jumping feet first into something which may not be right. Here are the main considerations.

How Much Do You Need?

Think carefully about how much money you really need. You should always try to borrow the least amount possible, as this will always work out cheaper in the long run. Remember that anything you get from the lender you will have to pay back with interest on top, so the lesser the borrowing amount, the better for you. Do some sums to work out how much you actually need, then look around for companies offering close to this amount.

How Much Can You Repay?

Whether the loan you want is payable over a month or 5 years, working out how much you can afford to pay back per instalment is very important. Getting behind on your loan payments, even just once, can really affect your credit file and therefore your ability to obtain credit in the future. Look at what you earn and what you spend each month carefully. How much are you left with once all of your essential expenses have been covered? Is this enough to sustain your lifestyle at the moment? Think carefully before committing to payments that you may not be able to comfortably afford.

Do You Have Security?

There are two main types of loans – secured and unsecured. Secured loans mean that you borrow against the value of a belonging such as property or your car. Unsecured means that you borrow money based on your credit score, rather than the value of what you own. If you default on a secured loan, then the lender would have the power to take it from you as ‘payment’ for the loan. Depending on the specific type of loan itself, you may find that it’s cheaper to take out an unsecured loan rather than a secured one or vice versa. Consider what assets you have and which method of borrowing would be cheapest for you in the long term.

What Does Your Credit Score Look Like?

Knowing what your credit rating is can really help you to understand which loan products you could be eligible for and can prevent you from repeatedly being turned down (which can harm your credit score even further). Check your credit file online with one of the credit reference agencies (the three main ones in the UK are Equifax, Callcredit or Experian) by signing up for a free trial or go to Noddle, which is a site run by Callcredit for a completely free credit report. You should get an indicator of whether you’re seen as bad, fair or good by lenders, so use this information to your advantage.

The Future of Credit: Paying By Card

Unsecured lending is probably more popular than it ever has been, and now that owning your own home has become a distant dream for many, being able to borrow money which doesn’t require property as security is very handy indeed. One of the most popular methods of unsecured lending is the credit card. If you don’t have one, you’re very likely to know someone who does.

The idea behind credit cards is that you have a certain spending allowance and this is loaded onto the card for you to spend how you like. You get a bill each month with a minimum repayment amount and interest is added to what you’ve spent. You can choose how much you want to pay off the card each month, but it has to be at least the minimum amount asked for. Credit cards are hugely popular and many people use them as a safe way to pay online, to buy more expensive goods without the risk of being out of pocket, and for the numerous perks that can come with them (cashback, air miles etc.). The future of credit cards is looking very exciting. Here are a few theories about what they’ll become in the coming years.

How cards might look

Credit and debit cards are all horizontally orientated at the moment, but there is a card out there which has the number and details printed at a different angle. This mean that when you hold the card vertically (as you would when inserting it into a chip and pin machine) the details like the card number and your name would be the right way up. More snazzy modifications could be having a moving hologram printed on the card or having the card made out of a different material other than plastic. The possibilities are endless.

How you might pay

Contactless payments are already being rolled out across the country as a way to pay for smaller items. You simply wave your card close to the chip and pin terminal and you’ve automatically paid. This acts a bit like the London Oyster travel card does, but the technology is still relatively new. Some have predicted a touchscreen display being added to credit cards, where you can scan your face or fingerprint in order to authorise payments rather than putting in a pin.

How security could change

Credit card fraud is a real problem, and as a thief only really needs your card number and a few other details in order to buy things online with your card, the security could really do with something extra. Some ideas for the future include cards with invisible details, so the card number can only be read when you press your thumb or finger against a scanner on the card so it knows it’s you. Other cards will have a voice activated payment confirmation, so only you are able to authorise payments on the card. Security features like these would drastically reduce the amount of credit fraud.

Things to Consider Before Borrowing Money

Some would argue that borrowing money is easier than it used to be, whereas others could argue that it is, in fact, much harder. Age and credit rating will probably be very different between the people who have these opinions, as lending in the distant past compared to lending now is very different indeed. Nowadays, your credit rating has a lot of power over whether a lender is happy to advance money to you or not. Whichever camp you’re in, you should not take borrowing for granted too much. Many people see debt as a normal state to be in – buying furniture on finance, having a large mortgage, using a credit card regularly…there are a variety of debts out there and some people have more than others. No matter how ‘normal’ debt is, however, you’ll need to consider a few things very carefully before taking out credit, as it is a big commitment which can severely affect your future if things go wrong.

What’s your credit score like?

Looking at your credit rating is an important first step, as this will give you the benchmark upon which you can work out what you’ll be eligible for. For instance, if you have a bad credit score, then it’s unlikely that you’ll be approved for a very low rate bank loan. On the flip side, if you have a high credit rating, then you shouldn’t really need to apply for a very high interest short-term loan, as you could get a much better deal from a bank, supermarket or credit card. Checking your score beforehand can give you a good idea about where you stand.

Do you really need to borrow money?

Consider whether you really need to take on debt or whether you’re just doing it because it’s become ‘normalised’. Is the thing you want the money for worthwhile? Will it benefit you financially in the long run, or are you borrowing in order to spend money on something which is wasteful or reckless? Consider paying for this thing for months or years down the line. Will it seem worth it in 6 months?Will you still be happy to pay for it in a year’s time?

Can you get the credit cheaper elsewhere?

You may have already found the lender that you want to go with, but have you taken the time to see if you can get your credit elsewhere at a cheaper price? You may not find it cheaper APR-wise, but another lender could cut out some of the extra costs or even allow you to tailor your borrowing amount more to your needs.

Are you happy to owe money for this amount of time?

Depending on how much you borrow, you’ll have a choice of repayment terms. This could be years if you’re borrowing a lot of money, so it’s very important to think about where you’re likely to be a couple of years down the line. You’ll be tied into paying the instalments for this time, so if you have plans to leave your current job and travel in the next year or so, then borrowing may not be such a good idea.