Moneysupermarket.com editor Clare Francis chats with loans & debt expert Tim Moss about the current credit crunch, the importance of a good credit score and offers advice on improving your credit rating...
Video Transcript
Clare Francis: The credit crunch continues to hit the headlines but what exactly does the term 'credit crunch' mean and how is it affecting consumers?
Tim Moss, head of loans and debt at moneysupermarket.com, is with me today to explain what is going on and give advice on how to minimise the impact of the financial crisis on your own finances.
So Tim, what does the term 'credit crunch' mean?
Tim Moss: It's really an industry term that refers to the liquidity on the money markets. Right now the banks are having problems borrowing money to be able to lend that money to customers, so the money they're able to get, they're having to pay a higher price for - and they're passing that higher price onto the consumers in the form of higher credit card rates, higher loan rates and higher mortgage rates.
Clare Francis: So is it therefore only really those who need to borrow, those who need a mortgage or a loan that are being affected by the credit crunch?
Tim Moss: In the majority, yes, but what we're seeing at the same time as the credit crunch is rising costs of living, so I would really call this the 'prefect storm', because at the same time as credit becoming more expensive - and I'm including mortgages and things like that - the costs of things like fuel, utility bills, things like that, are also going up. So what's happening is people are being hit in the pocket by rising costs of living are having to turn to credit to be able to run their monthly outgoings, and what's happening is they're finding problems getting that credit too, so it's hitting all and sundry.
Clare Francis: And what advice would you give to people who are struggling financially? Is there any way they can minimise the impact of the credit crunch and the rising living costs?
Tim Moss: Yes, the general advice is to cut back on your outgoings, and you can do that in several ways. First of all, and one of the most important things, is to make sure you're on the correct products. So that's not just financial products such as your mortgage, loan and credit card: also look at things like utility bills, make sure you're on the best plan for how much you're spending, and make sure that those are the most economical for you.
Clare Francis: And what a lot of people are finding is that if they do need to borrow and take a loan or a credit card out the rate that they're being offered often is dependent on their credit score - with those with poor credit histories being higher rates of interest than those with good credit scores - how can you find out about your credit history and what's on your credit file? Is there anything you can do to improve your credit score?
Tim Moss: That's a really good point. What we're saying this year is a good, clean credit record is the must-have accessory: forget the iPhone; it's a good clean credit record, because that's going to enable you to get the best products in the marketplace - and the 'best products' means the 'cheapest products'. So right now what I'd do is go and check your credit record, and there's a few little tips to make sure that you're on top of that, and that you continue to be.
[The] first thing is 'be on time', and that means make payments on time, so not just your big bills because right now the lending institutions will look at small bills as well. In the past a small bill such as your mobile phone bill or your catalogue bill might have been ignored because it wasn't really an indicator of how you run your credit. Right now they're looking at things like that, so make sure - even for £5, £10 - you're paying those as well.
Second thing is make sure things are corrected. So make sure on your credit file if there are mistakes - and we'll talk about how to check for those in a minute - make sure those mistakes have been corrected: you can issue what's called a 'Notice of Correction'.
Third thing is make sure you're on the electoral roll. The electoral roll is about being able to vote, but actually it's one of the first things any lending institutions will check to see whether you're on there. So if you're not on there, they can't see who you are, and won't lend to you.
Clare Francis: How do you find out what information is held about you because many people won't know whether something is incorrect on their credit file?
Tim Moss: OK, there's three main credit reference agencies, you've got Experian, Equifax and Callcredit. What I'd say is check the two main ones, which is Experian and Equifax - sometimes there are discrepancies between the two of them - and you need to make sure that those align themselves basically. It costs about £2, and you can apply for that over the phone or you can do it over the web. Then you'll see what the lending institutions are looking at, and you'll be able to see what they're making their decisions on.
Clare Francis: That's great advice - there are things that a lot of people, even if they're having trouble at the moment, they might be able to improve the situation?
Tim Moss: Yes, and what I'd say is if you are applying for credit, make sure you don't use the scattergun approach. We've got things such as 'Smart Search' on the site, and what smart search does is aligns your credit profile to a credit product, and makes sure that we're narrowing down the choice for you, and that you're not making too many applications.
Clare Francis: What a lot of people don't realise is that if they apply and are turned down for credit, it has a negative impact on your credit score doesn't it?
Tim Moss: Exactly Clare. What happens is that if you make multiple applications, other lending institutions will see those multiple applications, and what they'll do is start knocking off very valuable points from your credit profile, and you need every point you can get right now!
Clare Francis: Great advice there Tim, thanks very much.
