Loan sharks prey on recession victims
Loan sharks charging interest at over 1000% a year are thriving as the recession drives people into financial difficulties. Trading Standards Officers, Citizens Advice Bureaus and other debt advisers are reporting many more cases of extortionate lending. Interest rates are often described in terms of monthly repayments in money terms rather than in percentage terms as the law requires.
The trouble is that there is a shortage of credit in the economy as a whole, and personal loan rates have shot up as a result. Even high street banks now often charge 15% a year for a personal loan, even though the Bank of England base rate is just 0.5% and most savings accounts pay under 2% interest. In early 2008, personal loan rates were 8% when base rate was 5%. So the profit margin on personal lending has gone through the roof.
Loan sharks charging fifty times the interest rates available from high street banks are exploiting people who can’t get high street loans. Many of them have poor credit ratings, and in this case taking whatever steps you can to improve your credit rating should be your top priority.
How to improve your credit rating
Get on the electoral roll. It’s the first thing a lender checks. The form’s on your council’s website.
Get a credit report from Experian or Equifax. It’ll cost you £2. Check every fact and immediately query any that are wrong. If it shows unpaid debts, contact the relevant lender.
Pay your utility bills on direct debit. Any regular bills coming out of your account improve your rating - so a monthly mobile phone contract is also good.
Get a credit card. If your rating is poor, you won’t get a low-interest one, so apply for a high-interest one instead. Then use it a little and pay it off in full every month. That’ll boost your rating.
Dump old cards. Cancel any old credit cards you’re no longer using.
Stay below all your credit limits: on your credit cards and any overdraft facility you have. Every time you exceed a limit it affects your rating.
Don’t withdraw cash with a credit card. It’s very costly in terms of charges and interest.
Space out credit applications. Don’t fire off a lot at the same time.
