PREPAID CARDS

Low Risk Solution to Enhance your Credit Rating

If you have over spent this year and you are struggling to secure additional credit but are being refused due to your credit rating,

How does this work?

When you apply for a credit card, store card, hire purchase or loan, most lenders go to Credit Reference Agencies for information on your financial history.

Credit Reference Agencies compile credit histories from a number of sources, including the electoral roll, county court judgments and see how effectively past debts have been paid. Every time you open a new form of credit it leaves an electronic footprint on your record.

A credit rating tells a lender or investor the probability of the potential customer being able to pay back a loan.

You could struggle to borrow money if you’ve never taken out credit before. So, the more loan repayments you’ve successfully made on time, the better your credit rating is likely to be.

The decision to turn borrowers down for credit isn't made by the Credit Reference Agencies, but by the lender.

Who does it?

Credit-building facilities are available on credit cards and prepaid cards. For credit cards there is the Barclaycard’s CreditBuilder card and Capital One’s Classic card which offer credit limits that start at £200.

For prepaid cards, The cashplus and Sterling prepaid cards will lend you around £60, interest free, which you pay off with a monthly fee, around £5. This doesn’t mean that you get £60 to spend, but that you’ve been lent the monthly fee in advance to establish a line of credit. Prepaid cards are not linked to a current account, you ‘preload’ money and use them like a debit card.

What is the catch?

Creditbuilder is a great way to prove to lenders that you are reliable and creditworthy, and improve your chances of being accepted in the future. The following simple tips could boost the positive effects that creditbuilder gives you, and help build up your new credit history as long as you follow the simple steps:

• Pay all your bills on time
• Try to make up any missed payments as soon as possible
• Don't keep reapplying for credit if you’ve been refused. Being declined a lot can damage your credit rating
• Only make complete and correct credit applications. Inaccuracies and leaving out information could affect your ability to get credit
• Make sure you’re on the electoral roll
• Make sure all court judgement information is correct
• You may want to add an explanation to information held by Credit Reference Agencies, such as why an account went overdrawn, or why you missed any repayments. This explanation, called a Notice of Correction, is a statement of up to 200 words. Any future lender who searches for your report will see any mitigating circumstances.

Credit-building customers have often struggled to repay debt in the past, so they are more likely to fail to pay the balance of their card off in full, and it’s here the providers make their money.

You pay a monthly fee for prepaid cards, but also plenty of other charges. The cashplus account has an application fee of £4.95, and a withdrawal fee of 99p in the UK. The Sterling card has an application fee of £8.95, and an ATM withdrawal fee of £2.50, while most other debit cards don’t charge you at all.

See prepaid cards on offer >> Prepaid Cards

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Tags: apply for a credit card, barclaycard, capital one, Cashplus, credit building, CREDIT CARDS, credit rating, creditbuilder, PREPAID CARDS