Getting to grips with your credit

Understanding your borrowing:

Your borrowing will fall into either one of two camps: secured borrowing or unsecured borrowing.  A secured loan is a loan connected to an asset, something of value like a house or a car.  If you fall behind with payments, the lender may choose to repossess the asset and therefore, if you find yourself struggling, it’s important to try and prioritise payment for that borrowing.  Car financing or a mortgage are examples of secured borrowing.

Other types of lending would fall into the unsecured category as they are not secured against any assets. Examples of unsecured loans include credit cards, personal loans, overdrafts, payday loans, catalogue debts and buy now pay later products.  Unsecured borrowing is usually more expensive than secured as there is no asset for lenders to rely on if payments are not maintained.

On the third tab of our budgeting spreadsheet there’s space for you to make a note of all your debt repayments: credit cards, loans, Buy Now Pay Later, arrears on any household bills, and so on. Make a list of:

• How much you owe
• To whom
• The Annual Percentage Rate (APR), which is the total interest cost over a year – it will show this on your statement
• And how much you’re paying off each month.

If you use an overdraft, you may not be paying it off regularly, but it’s still a debt – make a note of how much of your overdraft(s) you’re using, and what the APR / interest rate is.

If you have a mortgage, add that too.