Martin Lewis explains how to build a credit rating from scratch using credit cards
MARTIN LEWIS has addressed the confounding reality of building credit in the modern world and how difficult it is for people who have had limited income and spending activity. Today on This Morning, the Money Saving Expert provided advice for people stuck in this predicament.
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Martin Lewis regularly urges savers to use caution when utilising debt themed products but at the same time, he acknowledges the need for a decent credit rating to get by financially. Today, the Money Saving Expert was questioned by viewer Miranda on how one can build their credit rating in difficult circumstances.
Miranda wrote in and detailed she had been a housewife for 12 years and as such didn’t pay bills.
She was completely dependent on her husband but two years ago she started working and she planned on building her credit history.
She explained she had tried to get credit cards from several banks but they all told her she didn’t qualify.
Martin as sympathetic to her cause and lamented the “catch 22” situation: “To get credit you need a good credit score and to have a good credit score you need a credit history.
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“So if you haven't got a credit history you can't get credit, but you need credit to get credit and it all goes in a vicious circle.
“The way we break that is you need to apply for what's called a credit rebuild card, also known as a bad credit credit card.
“The interest rates will be despicable, hideous, 40 to 50 percent APR.”
Given the dangerously high rates, Martin urged would-be applicants to use certain tools to ensure everything remains affordable: “There are eligibility checkers out there that will show you which credit rebuild cards you are eligible for, you apply for one of those and you'll have a credit limit of say 500 pounds.
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“What I’d then like you to do is go and do £50 a month of normal spending on it, things you’d buy anyway.
“[Then] Make sure you pay the card off in full every month, preferably by direct debit so you’re never missing it because the interest rate is hideous.
“That way you won’t pay any interest.
“You do that for a year, you'll start to build that credit history, showing them you're a good credit citizen.
“Then you’ll be able to move into the sort of more normal credit card range.
“So, bizarrely, to get credit you need credit. What credit will you get? Bad credit, go get the bad credit just make sure it doesn’t cost you.”
Consumers of all kinds may not have the best options at the moment as recent analysis from moneyfacts.co.uk revealed.
In mid-November, they detailed that a number of high street banks have cut the perks and interest on a number of their current account deals.
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On top of this, the Bank of Scotland and Lloyds Bank made credit interest cuts of up to 0.5 percent.
Rachel Springall, a Finance Expert at moneyfacts.co.uk commented on the few options consumers and savers currently have available: “Clearly, it is vital consumers decide carefully if now is the time to switch, but if they wait too long, they may well miss out on a free cash switching perk.
“At present, providers will be assessing how they can sustain any lucrative offers in light of the pandemic.
“With this in mind, we could well see more changes in the months to come and if this does indeed occur, consumers would be wise to review whether their account is still worth keeping.”
