Here’s what the various terms mean and how you can make sense of a particular rate.

Interest Rate

This is simply how much interest you pay. For example, if you borrow £100 and pay back £120, the interest rate is 20%. The problem is that this simple maths isn’t always very useful in the real world. For one thing, most loans or credit facilities charge you interest at regular intervals rather than just once. For another, you need to know how long the loan is for to know if a particular interest rate is a good deal.

Compound Interest

Unless you are paying just one interest charge, compound interest comes into play. As an example, imagine if you borrow £100 and pay 10% interest each year. If you don’t repay any of the money, then after one year you will be charged £10 interest and owe a total of £110.

If you haven’t repaid after two years, you will be charged interest but this time it won’t be 10% of the original £100, but rather now it’s 10% of £110, meaning an £11 charge. The next year you owe £121, so the interest charge is now £12.10 and so on. On a big loan with regular interest charges (for example, monthly charges) this can soon add up. In practice, of course, this effect may be reduced if you are paying back in installments.

Annual Percentage Rate (APR)

This is a way of comparing different loans, particularly ones of different lengths. For example, to work out which is cheaper, a £1,000 loan at 12% a month over six months, or at 8% a month over 12 months, would require some tricky calculations, especially when you take into effect the compound effect. Things would be even more complicated if the first loan had a £50 arrangement fee and the second loan had no arrangement fee but a £5 a month maintenance fee.

The annual percentage rate is a way round this problem. It lets you see the overall cost you would pay, taking into account any fees and interest charges, if the loan lasted for exactly one year and you didn’t make any repayments during this time. British law means lenders must always show the annual percentage rate when advertising a loan.

You may sometime come across the terms “effective APR” or “effective annual rate.” This simply means an APR that takes into effect compound interest. British firms producing an APR must do this, though firms in some other countries don’t have to.

Representative APR

The APR a company advertises isn’t necessarily the rate it will offer you. It may decide you are a particularly good or bad risk and thus offer a different rate. While this makes sense, companies could take advantage of that by producing eyecatching adverts that have very low APRs but only offering this rate to a few people.

To prevent this, a European law (which has been in effect in Britain since February 2011) says companies must list a Representative APR in their adverts. The rules say they must genuinely expect to offer this rate, or a cheaper one, to at least half of the people it offers the advertised loan to. Companies have to take into account the actual loans they’ve made in the past when figuring out a representative APR for an advert.

Every UK logbook loans company must prominently display the  representative APR rate on their website. We’ve put together some examples of charges from each lender to help you compare loans and find the best deal.

The limits of APR

APR can be a very useful tool, but it doesn’t always tell the whole story. For example, customers may repay the loan before the scheduled repayment date and thus rack up fewer interest charges. With some types of loan there’s a penalty for doing this (known as an early redemption charge), but for others there isn’t, so do check this.

Another problem is that APR doesn’t always work well for short-term loans. If you won’t be borrowing for a full year, the APR isn’t necessarily relevant. In fact, shorter loans may work out cheaper in terms of the actual amount you pay back, but carry a higher APR because the interest costs have to be “stretched” more to create the example of a full year’s borrowing.

APR can be a useful tool, particularly for comparing two loans of a similar type, but don’t rely on it completely. Instead make sure you know how much you will actually pay, and how this will change if you pay back the loan earlier or later than expected.

Once the bill of sale is in place the lender can accept people with a bad credit history – you will NOT have to do a credit check.

What is a ‘bill of sale’?

A bill of sale is a legal document that evidences the transfer of title to personal property from a seller to a buyer.  It reports that at a specific time and place, for a certain amount of money or value received, the seller sold the personal property to the buyer, and that having lawful possession of the item he was legally entitled to do so.

The bill of sale document itself may have a general structure similar to this:

“For the sum of £10,000 I hereby sell to John Smith full ownership of a blue BMW car, registration number xxxxx. (signed) Andy Jones.”

This financial instrument is used to convey title to personal property, either absolutely or by way of security (on a loan, for example.)   This is where it relates to financial services such as logbook loans and other secured loans.  A logbook loan is secured on your vehicle, and the loan amount available depends on the market value of your car.

This means that lenders are happy to lend to people with bad credit because they now have an asset backing up the money in the event of a default.  The flip side of this is that if you fail to repay the loan then the lender can use the bill of sale agreement to seize and resell your vehicle.  This educes the risk to the lender of not getting their money back.

There have been a number of Acts of Parliament relating to bills of sale.  These were designed in order to prevent fraud (for example the seller might sell the property with a bill of sale to a 3rd party without telling them it has a bill of sale attached.)  The initial Bills of Sale Act in 1878 has been updated several times, the last time being the Bills of Sale Act 1891.

Logbook loans and the ‘bill of sale’

Here is a quick overview of the whole process, from applying online to repaying the loan.  This is just for general illustration only, each lender may have a slightly different process so you’ll need to check their terms and conditions directly.  But as a rough rule of thumb here is how it works:

1. You apply online at the lender’s own website for an instant decision in principle.
2. The lender calls you back to agree terms and confirm that you qualify.
3. You meet the lender in person, either at a local branch or they can do a home visit.
4. You sign the loan agreement and the bill of sale document.
5. They give you your money there and then, by cash, cheque or bank transfer.
6. The lender holds onto your V5 logbook until you pay back the money.
7. You keep your car, with full rights of use, and drive at as normal.
8. Once you have repaid the loan in full the bill of sale is cancelled.

Further information

Please remember that CompareLogbookLoans.co.uk does not give legal advice or financial advice (see our disclaimer.)  Therefore you will have to do your own research before entering into one of these agreements.  These logbook loans do give extra options to people with bad credit, but this is balanced by the fact that you must be prepared to use your vehicle as security.  This requires you to sign a bill of sale agreement when you take out a loan.

Here are some useful links if you want to do some further research:

Financial Services Authority

Office Of Fair Trading

Citizens Advice Bureau

Compare Logbook Loans

In the UK a number of companies are now offering this service which is perhaps aptly named a logbook loan after a vehicles V5 logbook document. To borrow money against your car you will have to ensure that both you and your vehicle qualify with the individual lenders minimum requirements.

The majority of lenders in the arena have very similar expectations of the type of person and the value of vehicle that they are willing to consider. I have detailed the main requirements below.

The Person

Logbook Loan companies are comparitively relaxed about the people that they lend to and are arguably more concerned about the vehicle. However there are certain requirements that you will be expected to meet before being accepted.

A potential borrower must be:

• Over 18 Years Old
• A UK Citizen Or Permanent Resident
• Be Either Self Employed Or Be In Employment
• Be The Legal Owner Of The Vehicle
• Be In Posession Of The Vehicle V5 Logbook Document

The Vehicle

If you are able to prove that you are an elligible person, you will then want to show that your vehicle matches the companies requirements; although these requirements do vary, in our experience the following rules are the most common.

Here are the following rules regarding the vehicle:

• The Vehicle Must Be Under 10 Years Old (Classic Car Exceptions Apply)
• The Vehicle Must Be Clear Or Nearly Clear Of Finance
• Your Vehicle Must Have A Reasonable Market Value

To find out more about qualifying for a logbook loans please visit our “Do I Qualify” section here

How Much Can You Borrow?

Lenders will usually base the amount that they are willing to lend on the value of your vehicle. If your vehicle is worth £10,000 you will more than likely be offered somewhere in the region of £5,000 to £7,500 as a loan.

Repayment Terms

When borrowing money against your car it is exceptionally important to fully understand what repayments terms you will have to adhere to if you are to avoid losing your vehicle. Each company has there own rules regarding repayment, so it is exceptionally important to fully understand these and it is the companies duty to fully explain these to you, but if there is anything at all that you do not fully understand make sure you get the answer before signing on the dotted line.

Borrowing money against your car is not something to be taken lightly, please only do so if you are sure you can afford the repayments.

Please read further information in our “how it works” section here & our “FAQ” here

But as bad as all of these can be, there’s one thing that can be dumber than all of them: yet far too many of us do it right now.

The Crime Defined

What’s the sin? Simply put: having savings and debt at the same time.

Here’s a very simple example of why it’s so wrong in principle. If you have a £1,000 credit card balance at 18% annual interest, and £500 in a savings account at 5% annual interest, then at the end of the year you’ve paid £180 in interest, made £25 in interest, and wound up £155 worse off.

If, however, you use the £500 in the savings account to pay off some of the card balance, you wind up paying just $90 in interest. You’re still paying out overall, but you’ve cut your losses by £65.

Not only is this hypothetical example a reality for many people, but some of us even have debts and savings with the same financial institution. That’s absolutely crazy. There’s a good reason banks charge more in interest on debts than they pay in interest on savings: it’s how they turn a profit. When the banks can exploit this rate gap with the same customer, they must be secretly laughing their heads off.

What’s The Answer?

The key to overcoming this financial sin actually lies with a wider principle: prioritizing the debts with the highest interest rate. All things being equal, you should always put any spare cash towards paying off the highest rated debt, for the simple fact that it cuts your overall interest costs. Remember that every cent you pay in interest is effectively a complete waste of your cash. Paying the highest rated debt first means more of your money is working for you.

Extending this philosophy to take account of savings is fairly simple. Every one percent you earn in interest or investments is equivalent to using the same cash to pay off one percent in debt interest. Using cash to earn interest at 5%, like in our example, brings only the same benefit as paying off a debt that carries a 5% rate.

Here’s the thing though: if you’re anything like most folks, your cheapest debt will carry a far higher rate than your most lucrative savings or investment. There are occasional exceptions such as “stoozing”, which involves taking loans or credit on a 0% deal and putting it in savings or investments until the deal ends. However, these require a lot of financial know-how and organization, and in any case they still only make sense if you have no debts whatsoever.

Human Nature Has Its Drawbacks

There are a couple of main reasons for this sin being so popular. The first is that we are always taught the value of saving. That’s fine in principle, but if you’re paying out more on debts than you make from deposits, the simple fact is that you aren’t saving, you’re wasting.

Yes, it’s good advice to have money set aside for a rainy day, but cash and savings isn’t always the way to do it. If you’ve hit your credit limit on a card, keeping cash is an expensive form of rainy day fund. Instead, pay off as much of your balance as you can. You’ll still have the same financial buffer, but this way you only need to pay for it when you actually need to use it. Of course, you will need the self-control to treat the unused portion of your credit limit as your rainy day fund rather than a way to fund non-emergency spending right now.

Secondly, there’s an understandable psychological flaw of paying off the smaller balances first because we like the “win” of wiping out a particular debt altogether. The problem is that if you adopt this strategy regardless of rates, it’s the financial companies that are the true winners.

The Ifs And Buts

There is one important exception to this principle: when tackling debts, you must take account of the consequences of non-payment. For secured debts such as mortgages and car loans, this can be much more severe than for unsecured debts such as credit cards. Whatever the interest rates, it makes no sense to take your monthly mortgage payment and use it to pay off your credit card. So before assigning spare cash to your debts, make sure you’ve made all the payments necessary to avoid negative consequences (other than interest) such as fees, penalties or forfeiture of assets.

Financial institutions are now reaching clients using RSS feeds. Financial institutions and banks are usually slow in adopting new technology, but this has not been the case for using RSS feeds as a way to keep clients informed. Online blogs and financial news sites have also employed RSS implementation with great success.

Whether you are planning to work in the financial field after getting your college degree or want to learn about finances and investing to secure your future, the internet is a great resource for finding answers and guidance.

RSS feeds cover a broad spectrum and while there are many general financial feeds, there are as many that specialize in one area of finance. The financial industry has a countless number of contributors. Some of these are smaller while others are more publicly recognizable because of their size.

CNNMoney has 12 main financial feeds on offer, but many of them can often be repetitive or cover non-specific content. This is because of the sheer size of the content they are working to cover on a daily basis.

Some of the best financial feeds tend to come from the smaller, more specialized companies. The teams working for these websites are much smaller and they are honed to cover the key changes in the specific field they cover. Financial specialists provide the more intricate as well as time-sensitive details that traders and investors rely on.

People who are interested in trading stocks and commodities know that trade hinges on fluctuations in several different variables. For trades to be successful it is imperative to have the latest trading news on an updated basis so that fast action can be taken. Important changes on the market can be tracked by subscribing to appropriate RSS feeds.

Opportunities to act on market volatility are only hampered if the information is slow in coming or lacks the pertinent details. Subscribing to RSS feeds allows for immediate action in order to seize financial opportunities as they present themselves.

Economy and Finance

Economy and finance feeds are focused on the bigger issues of the economic and financial scene, although you will also find personal investment tips.

1. Moolanomy: This feed is about everything from how to save money on taxes to financial iPhone apps.

2. Financial Samurai: This is a blog feed that is filled with news stories about the economy and its effect around the world.

3. Footnoted: Provides articles on finance and business and is great for ideas on where to put the next investment.

Smart Shopping

Get some good advice on how to spend smart with these helpful feeds.

1. The Consumerist: This blog feed gives the lowdown on the best as well as the worst in the consumer world.

2. Bargain Briana: Covers everything from freebies to the best deals. A great feed for finding bargains of all kinds.

3. Common Sense with Money: Following this feed gives you news about ways to save money while shopping as well as how to obtain useful coupons.

Investing

Well Learn how you can make your money work well for you on these feeds focusing on investment.

1. Good Financial Cents: Signing up for this feed gets you free advice from certified financial planner, Jeff Rose.

2. Saving to Invest: This is the feed that will show you how to make smart investment decisions in any economy.

3. This is money: If you are looking for detailed UK specific info on everything having to do with investing, from taxes to fund types, this is a good RSS feed for you.

4. Get rich slowly: An ever growing trusted resource on almost everything financial.

All credit companies in the UK are required by law to hold a valid Consumer Credit License.  The Office Of Fair Trading had determined to revoke their license in 2009 and there had been various appeals going on ever since.

The company’s brand and loan bank have been bought by Hermes Property Services Ltd, an American company which already run a similar website.  There does however seem to be some legal issues over whether or not they can continue to use the brand and internet domain name.

Presumably the legal debate is around whether the term “log book loans/logbook loans” is a generic name for this type of financial  product, or if it is a specific brand name referring to just one company.   Hermes have applied to have the OFT to have the trading name added to their credit license but no decision has been made yet.

The original Log Book Loans website now automatically forwards visitors to the Hermes website after a short message.

There has been quite a lot of press coverage of this story over the last few weeks so here are some links to the most informative articles.

http://blogs.mirror.co.uk/investigations/2012/03/logbook-loans-logs-off.html

http://www.bbc.co.uk/news/business-17240167

http://www.business-sale.com/news/article/log-book-loans-assets-sold-out-of-administration-36005.html

http://oft.gov.uk/news-and-updates/press/2011/125-11

http://www.debtwizard.com/news/consumer-issues/900-nine-regions-limited-in-administration-and-sold-to-us-company

http://www.debtwizard.com/news/consumer-issues/460-government-to-ban-log-book-loans

http://www.debtwizard.com/debt-help/guides-and-advice/906-logbook-loans-self-help-guide

A car title loan is a type of secured loan that requires the borrower to use their car as collateral.  This means that if they fail to repay the money they owe then the lender, in the last resort, can repossess the vehicle and sell it in order to make up the difference.  When the borrower signs the loan agreement they agree to this and therefore the whole process is legal and above board.  Securing a loan on the car title means that ownership switches to the lender should the borrower break the terms and conditions of their agreement.

Title loans are usually taken out over a short term such as a few months, and repayment schedules can vary.  The maximum amount of money that can be borrowed depends on the resell value of the car, with most companies lending up to half this value, and with some offering even more.

There is normally no credit check because the lender bases their risk analysis on the value and condition of the car and not on the borrower’s credit score.  They can do this because they always have the car as an asset to fall back on should there be a default by the customer.

There is also a higher amount of interest charged on them because, the lenders argue, the typical person they deal with is far more likely to default on their loan.  Typically, it is only people with very bad credit who would apply to a title loans company in the first place, as most would apply to their bank first.  The large numbers of people being refused credit by their bank mean that title loans are increasing in popularity all the time, and are now very big business in the USA.

Many loans can be issued in a matter of 15 minutes if the person goes into a branch with all the relevant documents.

The market value of the car is determined by the Kelley Blue Book which list the current resale price of different car makes and models.  The customer has to hold clear title to the vehicle, otherwise they cannot borrow money.  The car also has to be completely free of liens or financing in order to qualify.

Regulation of car title loans

The laws regarding title loans differ depending on which state they occur in.  There have been several high profile state regulations to come out in recent years, and they often curtail how much the lenders can charge.  For example, in Illinois there is a cap on the size of the loan, currently at $4,000.

They also restrict the amount a person can borrow to be in proportion to their income.  They have banned balloon payments which means that payments must be in equal amounts rather than a large fee at the end of the repayment period (which often leaves the person no chance to repay and therefore means their car is repossessed.)

Most states also make the lenders who repossess cars keep hold of it for 30 days to give the person a chance to pay back the money in full.  There are often also limits and reglations around how many and how often borrowers can roll over and refinance the title loan.

Car title loans have had a lot of negative press and there are some people campaigning to have the more heavily regulated in order to protect vulnerable borrowers.

According to a recent OFT consultation there is a lot of misleading advertising among these debt management and credit repair services.  The Financial Services Authority has also said that consumers need to be very wary about using these companies.  Remember, there are lots of debt advice charities and government funded organisations that can help you for free.

Why you might want to repair your credit rating

The main reason is that people with bad credit cannot get a loan or a mortgage.  When you apply for credit with a lender they will score you using one of the credit reference agencies.  If you do not match their minimum score level for that type of product then you will be refused.  This refusal is then put on your record for the next lender to see.  This creates a vicious circle where everything you do makes it more and more difficult to borrow money in the future.

Luckily there are a few things you can do that might make it more likely to be accepted next time – but this is by no means guaranteed so don’t bank on it!

What you can do to repair your credit score

Unlike what the so-called credit repair companies claim, it is actually very limited as to what can be done to clean up your credit file.  They claim that they can remove all unfavourable information on you but often they are exaggerating, or worse, in order to get you to part with your money.  Here are some things you can do:

1.  Contrary to what credit repair companies may claim, they cannot actually remove a County Court Judgement (CCJ) against you.  The only way to remove CCJs from your record is if it has been incorrectly granted by the court, or if you have paid off the creditor in full within 1 month of the ruling.  However, if you pay the money in full after 1 month then you can get it listed as “satisfied” by applying to the court for a Certificate of Satisfaction which will the be added to your credit record.  This make it look better than if you still owed them the money.

2.  You can order a free credit report from one of the big 3 UK credit reference agencies and check to see if everything is correct.  By law they have to remove or rectify any mistakes and/or put on your file explaining what you think is wrong.  By checking your credit file you will also make sure that there has been no signs of identity theft or fraud.

3.  Check to see if you have any credit cards or store cards listed that you no longer use.  These still effect your credit rating because you are also scored according to how much credit is available to you in total across all of your cards.  By cancelling these cards you can make yourself look like less of a risk.  Remember, the credit agencies have access to all of your cards and balances so they take everything into account when assessing you.

4.  Get on the electoral roll as quickly as possible because the need to prove your identity and address in order to give you credit, and this is one of the easiest ways to do this.  Sometimes what people assume to be their bad credit history and past behaviour holding them back is actually just the difficulty a creditor has in verifying their identity.

5.  Make sure you pay your bills every month on time from now on.  They will take a steady repayment history into account when assessing your creditworthiness so make sure you show that you have been paying your bills on time for as long as possible.

What if you repair your file and still get refused?

Even once you have cleaned up your record it is still possible that you will be turned down when you apply for a loan.  In many cases a person wil have such bad credit that no amount of tidying up will ever make them creditworthy in the eyes of lenders.

Obviously this doesn’t mean that your need to borrow money just goes away!  If you have tried everything and are still being refused then there are bad credit loans available as a last option.  Expect to pay more in interest with these than you would with your bank, but on the plus side the repayment terms tend to be more flexible.  You might also be able to get a better deal if you are happy to use your car as security on the loan.

With many people struggling to still have money left at the end of the month it becomes essential that you learn to save money wherever you can.  At the end of the day there are only two ways to have more money at the end of the month: spend less or make more!

There are many books on personal finance and money saving tips but here are some the very best out there.  There are lots of other good books not included on this list but this is all you need to get started on your journey towards financial health.  These books will teach you how to spend less so you can start saving an investing each month.

The list includes everything from saving money, to getting free stuff, from living frugally to making extra income.  More books can be found by following the links to Amazon and searching there.

1. Free Stuff Everyday by Mike Essex

• Self published book by the master of getting freebies from companies, also known as “freebieman”.
• The ultimate way to save money – get things for free!
• Step by step guide showing you how to get stuff for free
• Get free cosmetics, fashion, gadgets, food and pretty much everything else you can think of!
• No tricks or illegal activities, it’s all legitimate ways to get free stuff.
• Take advantage of all the free products companies give away in order to build relationships and get customer feedback.
• Mike gives 90 examples from his own life, and gives lots of ideas on how you can do the same.
• Includes a 30 day challenge to help you get started

2. Thrifty Ways For Modern Days by Martin Lewis

• Martin Lewis is the man behind Money Saving Expert, the popular website and forum.
• This is a collection of some of the best money saving tips and handy hints from their members.
• Full of great information on how to cut costs, reduce your household budget and still live well.
• Martin edits this collection, and it’s not or nothing that he’s been called Britain’s biggest financial anorak!
• Lots of how-to guides as well as general information on what you need to know.
• Tips on household budgeting and money mangement.

3. Low Cost Living by John Harrison

•  How to reduce your living costs, reduce your carbon footprint and still live well.
• Includes information on how to grow your own vegetables and how to get the best deals from supermarkets.
• How to recycle and create solar power to reduce bills and lower costs.
• It’s not just about saving money, a lot of the methods are to help you live a better life regardless.
• Shows you how to move from a consumerist lifestyle to a more ecological lifestyle.
• A god book for dipping into whenever you need to know something.

4. The Money Magpie by Jasmine Birtles

• A guide to ditching your debts, saving cash and making money
• Jasmine Birtles is a financial expert on TVruns the popular Money Magpie website
• Money saving ideas, how to make more, and how to invest what’s left
• Helps you with long term wealth building plans
• Includes many self assessment quizzes to see where you are where you need to go

5.  365 Ways To Live Cheap by Trent Ham

• A great money saving tip for every day of the year!
• Trent is the founder of The Simple Dollar website.
• Contains lots of practical tips on how to save cash and still enjoy life.
• Gives lots of small money saving tips that will all add up by the end of the month.
• Covers everything from cutting costs to developing good conservation habits.
• This book gets straight to the point and doesn’t waste time with philosophical intros.

6.  The Frugal Life by Piper Terrett

• Teaches you how to spend less and live more.
• Piper is a financial journalist and runs the Frugal Life blog for MSN
• How to control your personal finances and save your money.
• Shows you how to spend less and enjoy being a frugal shopper rather than an overspender
• Tips on budgeting and how to develop a frugal nest egg for you and your family

7.  The Money Diet by Martin Lewis

• Another money saving classic by TV regular Martin Lewis.
• The book claims that it can save you up to £6,000 a year.
• Shows you how to reduce your household bills and save money on purchases.
• Teaches everything from organising credit cards to finding the cheapest utility companies.
• As well as slashing money on essentials he also shows you how to get the best deal on consumer products.
• A great book for the bargain hunter!

8.  Perfect Money Saving by Smita Talati

• Step by step instructions on how to save money and still enjoy your life.
• Ideal for people who are always short of cash at the end of each month.
• Explains everything from debt management to bargain hunting tips.
• Has a useful chapter on preparation before you start your new money saving life.
• This book is full of money saving tips and references and could save you a lot.

9. Toss, Keep, Sell! by Leah Ingram

• How to be frugal and de-clutter your home and life.
• Tips on how to make money from all the products and junk you don’t use or need.
• It’s organised by room, so you can de-clutter your house and clean out the mess.
• There are check-lists and step by step guides on how to sell your stuff and make money.
• Lots of tips on how to avoid clutter in the first place and keep spending under control.
• Great advice on how to simplify and organise your life.

10.  The Money Tree by Martin Bamford

• How to save money, make money and grow your own money tree.
• Step by step guide to personal finance written in easy to understand language.
• Makes the most boring of topics interesting and a joy to read.
• There is a fun quote at the start of every chapter to put things in perspective.
• The author is a published  financial journalist.
• Good for thinking about your personal finances with a long term view in mind.

 

If you don’t check your credit report regularly then you may end up being rejected when you apply for a loan.

There have been many cases where people with an otherwise good record have been caught out by simple mistakes like, for example, forgetting to update the address on your mobile phone contract after moving house.

Many personal finance experts recommend checking your credit file at least once a year, and you should always do so before any large applications in order to reduce the chance of being rejected.

The problem with checking your credit file is that it can cost you a lot of money if you go about it the wrong way.  Everyone has the legal right to check their file for £2 but as the UK credit reference agencies also have monthly subscriptions to their services, so it is is possible in theory to end up paying a lot more than this if you’re not careful.

Even £2 might be problem for some people with bad credit so we’ll be showing you how to check your credit file for free.  But first, here is what you need to know in order to make the best decision.

What is a credit report?

Contrary to popular belief there are no universal credit ratings, and credit blacklists don’t exist.  Each lender has its own criteria for the perfect customer, so even if you are rejected by one then you might still get accepted by another.  However, the scoring systems are kept secret and differ, not only between lenders, but also between individual products.  Also, when a bank assess you for a loan they don’t just use this information, they also take into account your past history with them and the specifics of your application form.

You credit report, or credit history, is the all information held on you by the UK’s big 3 credit reference agencies – Experian, Equifax, and Callcredit.  Every time you apply for a loan, mortgage or sign up to a payment plan, then the lenders will score you in order to predict your likely behaviour.  What this means in simple terms is that they want to work out whether or not you will pay the money back on time.  A large part of this scoring information comes from these agencies, all banks use at least one agency while processing your application.

Your credit report contains information from the following sources:

1. Electoral roll information, which includes names, addresses and who lives with who.
2. Court records, which include things like CCJs and bankruptcies.
3. Data on which lenders have already searched your file.
4. Addresses you have lived at, and people with whom you have ever had a financial association.
5. Fraud information, which documents if you have ever committed a fraud.
6. Account data from all banks and credit card companies, because lender are often allowed to share data.

It’s not just about risk assessment!

Contrary to popular belief a credit check is about more than a simple risk assessment.  The biggest factor in the decision is: will you make them money?  Are you an attractive prospect to them?  It is often the case that people with very good credit are refused a loan for the simple reason that they always pay back their loans early and will therefore not make the bank any money.  They have a finite amount of cash to lend, especially in the current economic climate, so they only give it to the customers who will make them the most profit.

Part of the credit check is to find customers who are in the sweet spot of being reliable enough to pay back the money, but are also likely to pay back over a longer period of time and therefore pay more interest to the bank.  For example, credit card companies may reject you because you always repay cards in full.  Banks are also screning for customers who are likely to want to buy more products in the future.

How to check your credit file for free

By law, everyone in the UK has the right to see their credit file.  According to the Consumer Credit Act and Data Protection Act all agencies are obliged to show individuals their statutory credit report for a fee of £2.  It is however possible to get access to it for free using a couple of tricks we can share with you.  You can only view your own report, spouses and family members must make their own request.

Here is what you need to do to get it online for free:

1. Visit the websites of the big 3 UK credit reference agencies: Experian, Equifax, and Callcredit.
2. Sign up to one, or all, of their free 30 day trials.
3. Get your statutory credit report and use the online tools for free
4. Then simply cancel your account before the 30 days are up!

If you are unhappy with what you find then you can also repair your credit record for free.