Natwest are trying to be seen to be doing the right thing

[Saracen]

....

It's no harder to cancel a direct debit than it is a standing order.

Agreed, and you have the extra protection of the Direct Debit guarantee, protecting you should a mistake be made either by the bank, or the holder of the DD (which, in this case, would also be the bank.

I think there's no simple one-size-fits-all strategy for dealing with credit cards, though there are a couple of golden rules.

Rule 1 - Never, ever EVER, for any reason, fail to pay the minimum payment. And the best way to ensure that is an automatic payment, for which DD makes sense.

Noxvayl, unless SOs have changed since I last used them, they're best suited for paying a fixed amount automatically. Problem is, a credit card minimum isn't fixed. It'll be either a small, nominal sum, OR dependent on the balance, whichever is the larger.

Rule 2 - Always pay as much of a card balance off as you can UNLESS you have other, even more expensive debts. In which case, ensure you pay the minimum, but prioritise more expensive debt, until it's cleared.

Rule 3 - Be VERY wary about having credit cards, or loans for that matter, at the same bank, or banks eithin the same group, as your savings or current account. Why? Set-off rules.

It's not widely known that banks can take money from one account to clear debt on another, without asking you first, or needing your permission. So .... if you have outstanding credit card debt, for instance, they can, if they wish, set off positive balances in other accounts to clear it. It's not commonplace, and extremely unlikely indeed if your finances are in good order, but if you've got problems .... well, suffice it to say it's a chance you don't need to take. Keep savings elsewhere.


Personally, my golden rule is I never put ANYTHING on a card I don't know, for sure, I can pay off in full, every month. Having been caught out years ago by unexpected illness, these days, I take absolutely no chances. Then again, I'm fortunate, in needing no credit. I have a couple of credit cards out of convenience, but I don't need them. If need be, I can cancel them, and about two months out of three, they have zero transactions anyway.




Which brings me back to Zak's first post, and "what do you think".

Well, anything that makes it clearer to people what's going on is a good thing BUT I'm cynical at the best of times, and talking about banks is, as far as I'm concerned, very far from the best.

Whenever a bank pretends ir's trying to do me a favour, or pretends to altruism or a moral code, I'm afraid I default to looking for either the hidden gotcha, or at the very least, the hidden motivation.

My bet is that they're switching to a fee-based system, have calculated that, perhaps with an adjustment in clientbase, they'll either make more money or at least, reduce losses and/or risk, and that that presentation of "simplicity" is merely slick marketing.

My view, I'm afraid, is to paraphrase an old adage .... "lying banker .... but then, I repeat myself".

If they're pushing simplicity, it'll be in their interests, one way or another, to do so.

[DanceswithUnix]

This whole juggling 0 percent balance transfer insanity blows my mind. Have never done it. When needed to borrow money I got, you know, a loan. Then paid it off. While this stuff does probably makes some sort of weird financial sense if you like playing games for the sake of it, I'm surprised it hasn't copped the same flak wonga has. I think we're too used to it so nobody blinks.

Some years ago they were straight 0% transfer, no fees. I did that for a while, bounced across a few cards. So I paid zero interest on about 6K for a few years, and interest rates were much higher than now so I saved quite a bit of money by basically putting that money into an account that offset my mortgage. I stopped because the deals weren't as good, it was getting to be only a year at 0% with transfer fees. Note that you have to cancel the old credit card as having a lot of credit cards will also hurt your credit rating if you already have more than you can pay back in your pocket. I guess that is the key though, I wasn't so much borrowing money on the cards as moving debt around to the cheapest provider where I knew at any point I could just slap it back onto the mortgage.

Payday loans, like the Wonga type of loans are really popular with foreign nationals as it is a quick way to create a credit history, they're called payday loans because they are designed to repay the balance on your next payday, people using them to create credit history will usually have the loan paid back in 48 to 72 hours. If you use a credit card to build your credit rating make sure you set up a direct debit to clear the balance. Nothing hurts your credit rating more than a missed mortgage payment it takes just one missed payments and it could take years to put your ratings back in order.

I really hope that isn't true. I have heard of people having mortgage applications turned down because they once took out a payday loan. I think they are taken as a sign of financial incompetence by the banks. I think most people start with a small bank loan to buy a car, or a credit card with a low borrowing limit. ISTR I did both, a card when I got my first job and a small loan when I left university. I also asked for an overdraft facility, the traditional banking version of a payday loan, which I used responsibly.

[KeyboardDemon]

I heard about people using Payday loans to build credit history from a person that works in one of those high street shops where they offer Payday loans. He said that it is the eastern Europeans that tend to do this the most, coming in on a Wednesday knowing that they get paid on the Friday. I can't confirm how true it is but when I googled using Payday loans to build credit history I did find results suggesting that it is a sensible approach to achieve this.

[DeludedGuy]

I get a 7.1% interest rate with no annual fee with my barclaycard platinum.

Having said that i tend not to use my credit cards very often.

I agree with theAnimus, personal loans are better value.

[jim]

I heard about people using Payday loans to build credit history from a person that works in one of those high street shops where they offer Payday loans. He said that it is the eastern Europeans that tend to do this the most, coming in on a Wednesday knowing that they get paid on the Friday. I can't confirm how true it is but when I googled using Payday loans to build credit history I did find results suggesting that it is a sensible approach to achieve this.

A lot of people think it's a good idea, but it really isn't in reality. Having a loan is a good idea, and I think a lot of people look at that and figure that the best solution is to get a payday loan because they can be so small. However, a payday loan and a bank loan, in terms of credit score, are vastly different.

From personal experience, it's completely unnecessary anyway. If you apply for a bad-credit style credit card, and pay it off for a few months, it will get you to a decent starting point without you incurring any fees at all.

Being a sad git, that was one of the first things I did when I turned 18.

[Saracen]

A lot of people think it's a good idea, but it really isn't in reality. Having a loan is a good idea, and I think a lot of people look at that and figure that the best solution is to get a payday loan because they can be so small. However, a payday loan and a bank loan, in terms of credit score, are vastly different.

....

Rather than just give my opinion on that issue, here's a question and answer.



QUESTION.

Dear James,

I was wondering if you would please be able to tell me what effect taking a payday loan would have on my credit rating? I know that if I maintain repayments then it shouldn't be a problem, but I understand these loans are viewed as sub prime and I therefore wondered if to other lenders it reflects badly on my credit file for having this type of loan? Thanks in advance.

Joanna, London


ANSWER

Dear Joanna,

If you repay the payday loan on time and in full then any effect on your credit rating could be positive. When lenders check your credit report they are looking for evidence that you are a responsible borrower. Repaying a payday loan on time and in full should therefore strengthen your case, because many payday and other short-term loan providers are now sharing customer records with Experian. Saying that, some lenders might see the fact that you’ve taken out a payday loan as a sign that your finances are under pressure. Importantly, lenders’ scoring systems are built by modelling actual customer data. As a result, if a particular lender’s experience is that customers who take out payday loans are more likely to miss their repayments, this will be reflected in their credit scoring. Actually, some of the lenders that use Experian for credit checks don’t currently differentiate between payday and other types of loans, so they wouldn’t be able to discriminate anyway. So if you do take out a payday loan, just concentrate on paying it back on time and you shouldn’t hopefully have any problems. (November 2012)



James, by the way, is James Jones, head of consumer affairs, at Experian.

http://www.experian.co.uk/consumer/q...kjames246.html

I'm not convinced I could have put it any better.

Credit rating is, IMHO, something of a black art, especially at the edges. Oh sure, defaults on payments are bad, CCJs are really bad, and declaring bankruptcy is the nuclear option, but around the edges, it's VERY hard to call.

Why? Not least, because ratings agencies provide data, but lenders interpret it and make the actual decisions.

Part of the problem is decision-making based on actuarial analysis is great at spotting trends and risk factors, but distinctly .... impersonal. It's like car insurance. I might be an extremely good driver, very safe and with no accidents ever (which helps a lot) but if I'm in an occupation that customer historical data says is high risk, I get loaded for that. A different company might well have a different view, because their customer historical data is different. And note what James said about lenders making decisions based on modelling customer data.

[jim]

Credit rating is, IMHO, something of a black art, especially at the edges. Oh sure, defaults on payments are bad, CCJs are really bad, and declaring bankruptcy is the nuclear option, but around the edges, it's VERY hard to call.

Why? Not least, because ratings agencies provide data, but lenders interpret it and make the actual decisions.

Part of the problem is decision-making based on actuarial analysis is great at spotting trends and risk factors, but distinctly .... impersonal. It's like car insurance. I might be an extremely good driver, very safe and with no accidents ever (which helps a lot) but if I'm in an occupation that customer historical data says is high risk, I get loaded for that. A different company might well have a different view, because their customer historical data is different. And note what James said about lenders making decisions based on modelling customer data.

For sure, that's ultimately what it comes down to. Ratings agencies are an interesting one, because whilst they will 'score' their customers, it means very little. I'm coming at this from the perspective of the banks rather than the credit rating agencies.

If you want a credit history that will get you a 28.9% APR credit card, then I can see how paying off a payday loan will help you. If you wanted a mortgage though, I don't think it would do you any favours. As James says, it could be construed as 'a sign that your finances are under pressure.' And if you're incapable of having enough spare at the end of the month to cover an unexpected expense, then a bank probably isn't going to want to lend you over £100k.

[Saracen]

.... As James says, it could be construed as 'a sign that your finances are under pressure.' And if you're incapable of having enough spare at the end of the month to cover an unexpected expense, then a bank probably isn't going to want to lend you over £100k.

And I sure wouldn't argue with that.

If I was a lender, knowing someone needed a payday loan wouldn't fill me with confidence, because it suggests either absolutely no "rainy day" provision, or very poor structuring of finances if all savings are locked down so tightly that you need a payday loan for an unexpected expense.

[Noxvayl]

Agreed, and you have the extra protection of the Direct Debit guarantee, protecting you should a mistake be made either by the bank, or the holder of the DD (which, in this case, would also be the bank.

I think there's no simple one-size-fits-all strategy for dealing with credit cards, though there are a couple of golden rules.

Rule 1 - Never, ever EVER, for any reason, fail to pay the minimum payment. And the best way to ensure that is an automatic payment, for which DD makes sense.

Noxvayl, unless SOs have changed since I last used them, they're best suited for paying a fixed amount automatically. Problem is, a credit card minimum isn't fixed. It'll be either a small, nominal sum, OR dependent on the balance, whichever is the larger.

Rule 2 - Always pay as much of a card balance off as you can UNLESS you have other, even more expensive debts. In which case, ensure you pay the minimum, but prioritise more expensive debt, until it's cleared.

Rule 3 - Be VERY wary about having credit cards, or loans for that matter, at the same bank, or banks eithin the same group, as your savings or current account. Why? Set-off rules.

It's not widely known that banks can take money from one account to clear debt on another, without asking you first, or needing your permission. So .... if you have outstanding credit card debt, for instance, they can, if they wish, set off positive balances in other accounts to clear it. It's not commonplace, and extremely unlikely indeed if your finances are in good order, but if you've got problems .... well, suffice it to say it's a chance you don't need to take. Keep savings elsewhere.


Personally, my golden rule is I never put ANYTHING on a card I don't know, for sure, I can pay off in full, every month. Having been caught out years ago by unexpected illness, these days, I take absolutely no chances. Then again, I'm fortunate, in needing no credit. I have a couple of credit cards out of convenience, but I don't need them. If need be, I can cancel them, and about two months out of three, they have zero transactions anyway.




Which brings me back to Zak's first post, and "what do you think".

Well, anything that makes it clearer to people what's going on is a good thing BUT I'm cynical at the best of times, and talking about banks is, as far as I'm concerned, very far from the best.

Whenever a bank pretends ir's trying to do me a favour, or pretends to altruism or a moral code, I'm afraid I default to looking for either the hidden gotcha, or at the very least, the hidden motivation.

My bet is that they're switching to a fee-based system, have calculated that, perhaps with an adjustment in clientbase, they'll either make more money or at least, reduce losses and/or risk, and that that presentation of "simplicity" is merely slick marketing.

My view, I'm afraid, is to paraphrase an old adage .... "lying banker .... but then, I repeat myself".

If they're pushing simplicity, it'll be in their interests, one way or another, to do so.

I agree with you, and jim, but personal experience seems to have directed my response in a more extreme way than intended.

I distrust bankers more so than most companies, they have the most incentive to screw you over and that can manifest in the most dastardly of ways when you try to get something done that should be simple. What I think is most important to highlight from what Saracen said is the fact that banks can do what they wish with your money. The agreement you have with the bank to allow it to keep your money gives them ownership of the money in your account to allow them to manipulate it as they please; they simply agree to give you access to that money, at any time, allowing you to take it out of their control and use it for something you want to. It is an agreement of trust, one that banks take advantage of and as such have earned my disdain. The best source I can find for this is this is this sentence for the Supreme Court ruling in the USA: "They passed, therefore, into the general funds of the Bank of Georgia and became the property of the bank." which can be found in a US Supreme Court case between the Bank of United States and Bank of Georgia from 1825. It is the only primary source I could go back to from various places that say the same thing, Banks are the legal owners of your money. It has serious implications for the economy in the digital era but I'd rather not go into that now.

The way I would use a credit card to provide me with a credit rating would be to have a set amount of money that gets used from the card, say £200 per month, and then make sure that my payment onto the card remained constant while I never exceed the amount I can afford to pay in each month. I tried doing that in 2010 with a credit card and used a direct debit to pay off the full balance. Turned out that the bank didn't pay the full balance in time to prevent me incurring an interest charge. Was only a small amount of money but it was enough for me to close my account and move elsewhere. It comes back to trust, I trust that a bank will make the payment, or request the transfer, in a manner that gets the funds to the account needed before interest payments would be charged. In the past this has failed to happen and I was not happy with the situation. I got my money back after making it clear I was unhappy with the situation but I no longer have any money in that bank account and all my cards have been destroyed to prevent any possible use of the account without my online login which is safely guarded.

Perhaps my response in not using direct debits is wrong. The situation was resolved and I guess the guarantee of direct debits allows for those sort of situations to get resolved. I'll need to have a think about it, still need to do the research on what Credit card I am going to use. While I search for some credit cards that will do what I need I'll use some time to think about the direct debit payment option and if it is more suitable.

Being a sad git, that was one of the first things I did when I turned 18.

I guess I am a sad git as well then. I am doing it, well not at 18 but before I have a credit history never the less, because family have warned against using debit cards only. The advice is to get a credit history of some sort to get the ball rolling and then I can go cold turkey on credit later, once I am a credit worthy customer of a bank.

Rather than just give my opinion on that issue, here's a question and answer.



QUESTION.

Dear James,

I was wondering if you would please be able to tell me what effect taking a payday loan would have on my credit rating? I know that if I maintain repayments then it shouldn't be a problem, but I understand these loans are viewed as sub prime and I therefore wondered if to other lenders it reflects badly on my credit file for having this type of loan? Thanks in advance.

Joanna, London


ANSWER

Dear Joanna,

If you repay the payday loan on time and in full then any effect on your credit rating could be positive. When lenders check your credit report they are looking for evidence that you are a responsible borrower. Repaying a payday loan on time and in full should therefore strengthen your case, because many payday and other short-term loan providers are now sharing customer records with Experian. Saying that, some lenders might see the fact that you’ve taken out a payday loan as a sign that your finances are under pressure. Importantly, lenders’ scoring systems are built by modelling actual customer data. As a result, if a particular lender’s experience is that customers who take out payday loans are more likely to miss their repayments, this will be reflected in their credit scoring. Actually, some of the lenders that use Experian for credit checks don’t currently differentiate between payday and other types of loans, so they wouldn’t be able to discriminate anyway. So if you do take out a payday loan, just concentrate on paying it back on time and you shouldn’t hopefully have any problems. (November 2012)



James, by the way, is James Jones, head of consumer affairs, at Experian.

http://www.experian.co.uk/consumer/q...kjames246.html

I'm not convinced I could have put it any better.

Credit rating is, IMHO, something of a black art, especially at the edges. Oh sure, defaults on payments are bad, CCJs are really bad, and declaring bankruptcy is the nuclear option, but around the edges, it's VERY hard to call.

Why? Not least, because ratings agencies provide data, but lenders interpret it and make the actual decisions.

Part of the problem is decision-making based on actuarial analysis is great at spotting trends and risk factors, but distinctly .... impersonal. It's like car insurance. I might be an extremely good driver, very safe and with no accidents ever (which helps a lot) but if I'm in an occupation that customer historical data says is high risk, I get loaded for that. A different company might well have a different view, because their customer historical data is different. And note what James said about lenders making decisions based on modelling customer data.

Very interesting. Credit ratings are strange to me. I would rather get on their good side as soon as I can, hence the interest in researching the topic.

What effect would lending from a peer to peer lender like Zopa have on your credit rating? I'm not sure how ratings agencies view those sorts of loans or how the banks rate them. I would guess that the banks dislike them because they are effectively loans outside of the banking system.

A follow up to that would be: does your credit rating improve if you decide to lend on a peer to peer service like Zopa? Surely having enough disposable income to lend to others is a sign of healthy finances which would reflect positively on your credit rating.

Hopefully someone can answer those questions for me. Wasn't targeting them specifically at Saracen

[DanceswithUnix]

Looking at the deal offered in the original post, it doesn't seem that impressive. Tesco can offer a better APR (for those that don't opt for the automatic pay off at the end of each month) with no yearly fee and on top of that you get club card points for all your purchases made on the card. If you can find one of the deals that multiplies your vouchers by 3 or 4 times then it works out as quite a significant cash back on your spending. OK, you have to be OK with Tesco knowing your spending habits, but otherwise it makes the traditional bank deals look rather rubbish.

[jim]

A follow up to that would be: does your credit rating improve if you decide to lend on a peer to peer service like Zopa? Surely having enough disposable income to lend to others is a sign of healthy finances which would reflect positively on your credit rating.

Every credit rating agency I've been involved with only tracks credit, not assets, so it wouldn't show. It's all about what credit you have applied for, what credit you have, and how you use it.

[Noxvayl]

Looking at the deal offered in the original post, it doesn't seem that impressive. Tesco can offer a better APR (for those that don't opt for the automatic pay off at the end of each month) with no yearly fee and on top of that you get club card points for all your purchases made on the card. If you can find one of the deals that multiplies your vouchers by 3 or 4 times then it works out as quite a significant cash back on your spending. OK, you have to be OK with Tesco knowing your spending habits, but otherwise it makes the traditional bank deals look rather rubbish.

My parents use a Sainsbury's credit card because it is the closest store to us and it offers a good bonus to nectar points which they have been hoarding for years now. I think they have in the region of £800 worth of nectar points that are saved for Christmas's where we spend loads on food for family gatherings. It serves as a useful buffer for birthday's as well where we generally have a large gathering. It is useful not to have to spend on both food and presents when you entertain the family for your birthday.

I'm not comfortable with giving a supermarket that much of my information. I prefer to compartmentalise my information; purchase history and tracking will be something that a separate company can get hold of, well at least only part of. At some point I'll have multiple cards for different types of purchases to further segregate data tracking on me. I want to hedge my finances as much as possible.

[DanceswithUnix]

I'm not comfortable with giving a supermarket that much of my information. I prefer to compartmentalise my information; purchase history and tracking will be something that a separate company can get hold of, well at least only part of. At some point I'll have multiple cards for different types of purchases to further segregate data tracking on me. I want to hedge my finances as much as possible.

They can look up where you live. From the post code they know what sort of dwelling and property prices and therefore the affluence of the area. From that they can gauge your income and academic background. They can probably find your age pretty easily too, so knowing your age, salary range and academic, they can probably guess which shops you go to.

Try your postcode here, or if you want to be tin foil hat the postcode of an area you know well: http://www.checkmyarea.com/. That is just a taste, I think the old upmystreet website used to be way spookier than that, with predictors for things like how many microwave meals people in that area eat per week.

So overall I don't think I am giving much extra away, and certainly the money returned seems worth the leak of how much I spend in which shops (to me).

[Gerrard]

I'm pretty certain that when I was applying for my mortgage, one of the stipulations was no payday loans in the last 12 months. If you have a mobile on contract or pay utility bills, they will show on your credit history and can help.

I have two credit cards; one I got with my bank that I use for online purchases and for one-off large purchases (>£100) due to the added security that they can give. The other was for a more specific reason when I started traveling a lot and gives me the best deal when purchasing abroad. It's fees for drawing cash out abroad is also one of the best; only paying the interest on it that month (even though you pay it off in full) and doesn't load the exchange rate. It also means I only need to get out what I need. I pay both off in full every month with a DD and had no issues in the last >10 years.

Then there are the ones that give you bonuses (cash-back, air-miles, points for something). Again, if you pay in full, they can be good. There is also the dubious (and almost certain against T+C's but maybe not illegal per se) method of using said cards for business purchases; I know one of my friend's father using his Marriott card for business expenses and probably never has to pay for a hotel ever again!

[finlay666]

Well their 0% offers were rubbish anyway.

As a shameless 'stooger' of 0% cards (and having paid interest just once due to foreign purchases not being included on the offer) 0% cards are not the issue, the mentality of "buy now, pay never" is the issue. Credit cards are seen as infinite pools of resources that don't dry up without thinking that they do still need to be paid off.


As an aside as a financial institute they also seem to want to wreck themselves currently. Their cash ISA from tomorrow pays for the majority of users (and any new accounts), just 0.75% interest, for the lucky ones, it's 1%. The bank I moved to a while ago pays a minimum of 1.3% for anyone.

To me their service was pretty poor too. From having to explain how ADDACS works on a direct debit (when moving bank) or from them setting up a student account with 0 overdraft despite writing to me to tell me it was approved, then charging when I went into it they always seemed pretty poor at doing their job

[Saracen]

They can look up where you live. From the post code they know what sort of dwelling and property prices and therefore the affluence of the area. From that they can gauge your income and academic background. They can probably find your age pretty easily too, so knowing your age, salary range and academic, they can probably guess which shops you go to.

Try your postcode here, or if you want to be tin foil hat the postcode of an area you know well: http://www.checkmyarea.com/. That is just a taste, I think the old upmystreet website used to be way spookier than that, with predictors for things like how many microwave meals people in that area eat per week.

So overall I don't think I am giving much extra away, and certainly the money returned seems worth the leak of how much I spend in which shops (to me).

Utterly agree with the last sentence, especially the "to me" bit. The difference is that, to me, it isn't a price worth paying, surrendering that much info, and purchasing habits, to a shop.

Neither view, IMHO, is inherently right or wrong. It's just a personal value judgement, and we judge differently.

As for postcode, it's impossible to stay completely off the grid. Or at least, it is if you live a halfway normal life. You can minimise exposure, but not eliminate it. One way I minimise it is to opt out of the commercially available electoral roll, and restrict my entry to the "limited access" version not available to commercial buyers who otherwise can just buy it.

And a second method is simply to pay in cash in supermarkets. They no doubt can still find my entry on various government databases, but they won't know if I'm a customer or not, and certainly won't have any data on either spending patterns, or if their databases keep it, what was in my spend. If you pay by card, however, then they know :-

- who you are, and
- what you spent, when, and how often, and
- exactly what you bought, and when, and how often, over a period.

What they keep, and/or how they use it, I don't know. I do know they can't use information they don't have, and by paying in cash (and, of course, not using store "reward" cards), I can be sure they don't have it.

Is it worth forgoing "rewards" for that extra bit of privacy? For me, hell yes, or I wouldn't do it.

For anybody else? That's up to them. It's a value judgement.

I do wonder, though, if everybody with a reward card is aware of the price in privacy? If they are, fine. If not, they ought to be told.