Before you buy

Things to think of

Borrowing money

Read our guide jam-packed with information on credit, explaining the comparative differences between cash and credit, with advice on how to apply for credit, and what to do if you are refused.

For more on borrowing money, see Money and Credit

• Credit or cash?
• Applying for loans and credit
• Is your credit record correct?

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Credit or cash?

We all know the advantages of using credit: 

• If you need something urgently, you can get it right away
• You can spread the cost of something large over a period of time.

The disadvantages are:

• In the long run it usually costs more - because you have to make repayments, and the total ends up being more than you borrowed
• If your circumstances change, for example you lose your job, you might not be able to keep up the payments
• It is easy to spend more than you intended, and to lose control of your finances.

The advantages of paying outright with cash are:

• You might be able to negotiate a cash discount
• Even without a discount, you will probably end up paying less because there is no interest or other charges to pay
• You won't have to worry about keeping up repayments.

Remember:

• Try not to buy on impulse because you have seen a special offer or discount
• Shop around for the best deal - can you buy it at a lower price, or get cheaper credit from another store, catalogue or lender?
• Work out the real cost of buying on credit and check the APR - what is the cash price and how much extra will it cost to pay by instalments?
• Don't take out a loan for longer than you need it - how quickly can you pay it off and what is the most you can afford to repay each month?
• Check your budget so you know what you really can afford to repay - if something unexpected comes up, for example if the car needs repairing, or the children need new shoes, will you still be able to keep up the repayments?
• Read the small print very carefully before signing!  What exactly are you agreeing to?

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Applying for loans and credit

You might be asked to put your home up as security for a loan. Think very carefully before you do this. If your income drops unexpectedly, you could get behind with your repayments and lose your home.

Before they let you borrow their money, lenders will want to make sure that you are likely to pay them back. They will ask a credit reference agency to check on you before they decide whether to give you credit or not.

The lender will ask you to complete a credit application form and then you will be given a credit score based on your answers.

If the lender thinks you score highly, you will be given the loan or credit. If you do not score highly enough, your application will be turned down.

You will be given points for your age, income and whether you own your own home. Information about you held by the credit reference agency might affect your score. For example, they might have a record of any unpaid debts. It is the lender, not the agency, who makes the decision about giving you credit. You might pass with one lender but not with another.

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Is your credit record correct?  

If you think you have been refused a loan, credit card or credit agreement because of your credit record with an agency, you can check the information they hold about you.

If a lender turns you down for credit, you can ask for the name and address of any credit reference agency that provided information about you if:

• You write to the lender within 28 days of your last contact about the credit deal
• The lender used a credit agency, they must tell you the agency's name and address within seven working days of getting your letter.

There are three main credit agencies in the UK. They are:

Callcredit plc
PO Box 491
Leeds LS3 1WZ
Telephone: 0870 060 1414

Experian Limited
Consumer Help Service
PO Box 8000
Nottingham NG1 5GX
Telephone: 0870 241 6212

Equifax plc
PO Box 1140
Bradford
BD1 5US
Telephone: 0870 514 3700

You can write to them at any time and ask to see the information they have on you. You can also order your file online and over the telephone from Equifax and Experian, so long as you have either a credit card or debit card in your own name.

If you write you will need to:

• Send a fee (usually a minimum of £2 but dependent on the agency)
• Give your full name, date of birth, address and post code
• Include any other address you've lived at during the last six years
• Give your business name and address if you are a sole trader or partnership, because the agency could hold information about you under this name.

Keep copies of any letters you send.

The agency must reply within seven working days to:

• Ask for more information from you to help it find your file, or
• Tell you it does not have a file on you, or
• Send you the file.

Changing your file

You can ask the agency to change the information on your file if it is incorrect, or it includes details about people who have no financial connection with you.

You can't get information removed just because it is embarrassing.

If you need further advice on dealing with credit agencies, contact the Data Protection Commissioner Information Line on 01625 545 745.

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