How to Beat the New Year Credit Challenge
23 Dec 2009 Tell a Friend
If the phrase "New Year, new you" makes you want to crawl back under the duvet, it's time to wake up and smell the coffee - especially if you're planning to use credit to fund your lifestyle.
Cars, homes and even the weekly groceries are set to get more expensive, while borrowing criteria become increasingly tough as the recession bites.
Here are five financial challenges you could face - and some simple tips for tackling them.
Finding it harder to obtain credit
There's less money available to lend and great concern within both government and lenders about people building up amounts of debt that they are unable to pay back. As a result, credit is increasingly hard to get unless you have an excellent credit rating.
* Get to know your credit report - the history of your credit accounts, from cards and loans to catalogue and mobile phone contracts, plus your repayment record. Lenders read it when they assess whether you would be a good borrower, so it's important to ensure that it's up-to-date and accurately reflects your circumstances. Check your credit report is in good health with a free 30-day trial of CreditExpert.
* Look for errors and ask the relevant lender to amend them - for example an incorrect address could affect your credit rating.
* If special circumstances, such as a major illness, were at the root cause of past payment problems, ask to add a note of explanation to your report.
The VAT rate goes back up to 17.5%
New Year's Day sees VAT return to its normal 17.5 per cent level - which means an extra 2.5 per cent on almost everything you buy. It's a minor annoyance when you add more than two pence to every pound you spend on everyday items, such as a take-away coffee or a bar of chocolate, but if you?re planning to buy major items such as a cooker or a sofa, it can really hurt.
* Review your budget and increase the amount you allow for basics such as clothes and dry cleaning - almost everything except kids' outfits and non-luxury food will go up.
* Research the best interest-free or low-interest credit deals on major items carefully before applying. Do not go for every deal in the hope that one lender will say yes, because your credit report will record all of these applications. These can make other lenders nervous that you're overstretched, desperate or even planning a fraud - and that?s bad news for your credit status.
* If you ever go into the red at your bank, get an overdraft limit approved - you'll pay far less interest than on unauthorised overspending and you'll protect your credit rating.
Cars will get more expensive
The government's scrappage deal - which subsidised people swapping an elderly car for a new, more efficient one - is ending and a new showroom tax will increase the duty that you will have to pay on nearly all car models.