MONEY'S TOO TIGHT TO MENTION
Monday, January 21, 2008.
By Credit Expert
After a decade of optimism and growth, 2008 is already striking an unaccustomed note of economic uncertainty. The housing market is slowing, utility bills are expected to rise and, after a period when credit has been freely available, lenders are becoming increasingly cautious.
As a result, getting through the credit crunch is high on almost every list of New Year's resolutions. Many of us give up after drawing up an ideal budget that we cannot stick to, so here are some realistic ways to create your own survival guide.
Check your credit report
Your credit history is key to keeping your finances in check. When lenders are reluctant to take risks, it's crucial to be able to show that you aren't already drowning in debt and that you make your repayments on time and in full.
Start by checking your credit report to be sure that it is up to date and accurately reflects your circumstances. It lists your credit accounts, such as cards, loans, mortgages and even mobile phone contracts, along with your payment track record and other relevant information, such as whether you have any court judgments against you for non-payment of debts.
Lenders look at it when they decide whether to make you an offer. Even a minor error could make the difference between getting that crucial loan and being turned down, so go through it carefully. Contact the relevant lenders to correct any mistakes or misunderstandings as soon as possible - be prepared to provide proof and explanations, if necessary.
You can see your Experian credit report for free with a 30-day trial of CreditExpert, the online credit monitoring and identity fraud protection service.
Don't bank on interest rate cuts
The recent 0.25% cut in the base rate seems like good news - and experts are predicting at least two further cuts in 2008, with the first coming as early as February.
Unfortunately, the amount that banks pay each other to borrow the cash they then lend to us is unusually high, so a number of lenders aren't passing the reduction on - at least, not in full. In some cases, interest rates are even being increased, especially when the borrower is seen as high risk.
The message is clear: don't bank on interest rate cuts to save you lots of money, especially if you have a checkered credit history. Shopping around can still repay you handsomely but you may need an excellent credit rating to be offered the best deals.
No longer safe as houses
The housing market appears to be stalling, with price inflation, the massive £1.3 trillion in personal debt amassed by Britons and the new-found caution of lenders all paying a part - up to 400,000 people were refused for mortgages in 2007, while the number of people having their homes repossessed rose 30% in the first six months of the year.
If you are one of the thousands whose cut-price, fixed or special starter mortgage deal is coming to an end in 2008, it's unlikely that you'll get away without paying more than you have in the past - and you should try to factor the extra hundreds or even thousands of pounds into your budget.
Remortgaging and equity release schemes are also likely to be vulnerable, especially as house price growth has slumped in recent months, so you can no longer bank on price increases to get you out of trouble.
One more thing to watch out for is high application or set-up fees that lenders have introduced to claw back some of their losses. One specialist website reports a 46% rise in mortgages with an application charge of more than £1,000.
Even so, for those with substantial savings, a good job and an excellent credit report, all these hiccups could make 2008 a good time to buy. Watch out for city centre flats, where supply is outstripping demand and developers are willing to discount heavily.
Tackle price increases
Utility bills are set to rocket because the wholesale price of gas has risen 13% and electricity has shot up 17%.
There are two main ways to minimise the impact of this. The first is to take the green route: turn down your thermostats by a few degrees, take showers, adjust the timing on your heating and never keep appliances on stand-by.
The second is to use one of the many price comparison sites which matches your details to available offers.
Improve your credit status
Credit can help you get the house of your dreams, a new family car or a loan for a much needed holiday. The knack is to manage it effectively - and that starts with making the most of your credit status.
Go back to your credit report for a snapshot of how well you are managing.
Do you make all your repayments on time or do they sometimes slip? Set up direct debits that will mean you cannot forget. Alternatively, you might be better off rolling up your debts into a single loan that is easy to remember - you could save money on interest as well, if you search carefully.
Do you really need three credit cards or could you pay one off? A limited number of well-managed accounts is much more attractive to lenders and may boost your credit rating.
Have you had problems in the past but feel that circumstances - an illness, for example - explain them? You may be able to add a note that will be seen by lenders in future.
Even something as simple as registering to vote at your current address will add valuable points to your credit score.
If you'd like to get an idea of your credit rating, you can also order your National Credit Score from CreditExpert. It won't be the same as a score calculated by a lender, because they all use different information and formulae, but it will give you an idea of where you are and help you to set realistic targets.
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