Improve your chances of getting credit
Here are some tips to help you get that good credit card deal, despite a less than perfect credit record.
If you're paying 12% or more on any of your debts then you're paying too much. That's my rule-of-thumb for the current climate, based on inflation, availability of credit, current prices, and the increased risk and difficulty of repaying at higher interest rates.
If it's at all possible, you want to get deals that are a lot cheaper than 12% and you want to try and get the real bargains.
But this can be easier said than done. After all, the best deals are usually reserved for people with excellent credit records only. So here are three ways to improve your chances of getting a top credit card deal:
1. Buy PPI with the credit card!
Now you might not expect to see these words on a responsible money site, so allow me to quickly explain. Lenders make a huge profit from payment protection insurance (PPI), which they massively over-price so that they can afford to showcase longer, better interest rates on the debt. Effectively, they're hiding the cost of your loan in an obscure and often ineffective insurance.
It's clear from lots of feedback from applicants over the years that many of the lenders are more likely to accept your application if you take the insurance with the card. This is because you're effectively agreeing a much higher interest rate without realising it. The lender measures the total expected profit versus your credit profile and is now more likely to make a decent profit, so it's more likely to accept you.
However, you don't want to keep this expensive insurance. The good news is that you have 14 days to cancel it without charge! Therefore, after the lender accepts your application for the credit card, you immediately cancel your insurance without it costing you an extra penny. I used this technique myself before whilst stoozing. (Stoozing is borrowing very cheaply on a credit card and then saving that money in a high interest account to make a profit. Due to credit card fees this is rarely worth it anymore.)
It is vital that you cancel the PPI in time, so make a big note to yourself.
2. Appeal the decision
Let's assume you're rejected. Feedback from readers over the years has shown that if you write back and ask why, stating a case as to why each failure on your report doesn't reflect the quality of your application (and if possible including evidence that you're a good customer), the rejection is frequently overturned. Use a professional and unemotional tone by stating the facts only. Considering how often this works, it's worth a try.
3. Talk to your bank
That's another sub-heading you don't often see on a respectable personal finance website. Getting products from your own bank is usually expensive. Banks know that its own customers are a captive market, so they don't often compete on price and can even be very expensive.
However, if you already have a history with your bank - or even an existing credit card company - you can tell it that you're planning to shop around for another credit card but were wondering first if it had any special deals.
Often your existing card provider will give you a deal so as not to lose your business, whereas your bank will give you a deal because it has more information about you from its own records. It knows that you're a good customer, despite the couple of bad marks on your credit report, for example.
This tactic has also been reported to be successful on many occasions over the years.
Some more tips
Finally, here are two bonus tips for if those three ideas fail:
If you're simply unable to get these top deals, or consider your record too weak to do so, try tactical applications. This means going for deals that aren't top but are still good, so that you're less likely to be rejected and further damage your credit record.
You can see how your credit record looks now by viewing your credit report online with a free, 30-day trial of CreditExpert, after which you'll be billed £7 per month if you choose not to discontinue the service.
If you can't even get reasonable deals, it's better to get debt advice than to jump into a more expensive debt. National Debtline continues to get excellent feedback and you can also learn new tactics yourself by checking out our new Dealing With Debt blog.
Get help from lovemoney.com
If you have a credit problem, lovemoney.com can help.
Watch our video: The secret reason banks reject you for credit
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More: Beat rising credit card rates | Beware these 19 credit card tricks!
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When advising people on benefits on how to live within their means as well as improve their normally shattered credit ratings, I often advise them to take advantage of hire-purchase for low to medium cost domestic items they need for their homes and intend to buy anyway. I advise them to plan ahead, first identifying what they need and then excercising patience while they save up half to three quarters of the cost of the item they want by saving a set amount per week. It is impotant also to make sure the shop you purchase the item from oporates hire-purchase agreements. Once they have saved more than half the cost of the item, ideally something at the lower end of what the shop will accept hire-purchase for, I advise them to try to pursuade the shop to accept them for hire-purchase, despite being on a benefit, by offering 50% of the purchase price as deposit and asking if the shop is prepared to hold the item for them while they pay it off. Most shops will not wish to hold onto a sold item as it takes up space needed for a replacement, but the practical upshot of doing this can be that the shop staff may then see you as a more honest person who is not trying to rip off the shop and get an item for half price before disappearing. Assuming that the shop agrees to the hire-purchase agreement (and they do not always do this, in which case I advise my client to keep on saving and not get distracted), I advise them to then make payments equal or slightly greater than the amount they have been saving each fortnight (benefits being paid fortnightly). This is where having saved more than half the cost comes in: a shop is unlikely to accept the £5 or £10 payments a catalogue might, so having a bit extra already saved up means that you can make a slightly greater payment. If the item puchased costs less than £100 this should be possible within a realistic timeframe and the saved reserve should not run out before the final payments have been made. Paying the item off successfully within the timeframe agreed with the shop should be beneficial for the client's credit rating, as they will have proved themselves reliable in a credit agreement. The trick is to avoid trying to do this with items costing over £100, thereby reducing the time taken to achieve the purchase, as well as reducing the potential for defaulting on the agreement. It does take a lot of will power to do this and the thing to keep in mind throughout is the eventual benefit to the credit rating. I consider this method to be much better than purchasing things from catalogues with the same intention as you are dealing directly with a shop and so not only will you have take more responsibility for your payments rather than simply setting up a direct debit which you then forget about, but you will become a better manager of money on a small budget.
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I once applied for a credit card and the credit check validation was done through Experian, they refused me the card I had applied for and offered me an Experian Card which I had not even applied for at exorbitant rates. Not only will they have marked my credit record for the refusal making it harder for me to apply elsewhere but I personally found this action to be extremely suspect and would have thought the credit card company would have had legitimate grounds for a case aginst them (so I suspect it was probably the same company under another hat). I would advise against doing anything connected with Experian as they seem to use any service just to try and sell you their own credit. So I just stuck with my current Virgin Money Card instead, couldn't be happier (and no I have no other connections with Virgin Money).
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03 February 2010