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Banking Questions and Answers

Get your money concerns and queries answered by our personal finance experts.

Banking Questions and Answers

Whether you want to know what kind of loan might be the right one for you, or if you should open a single or joint bank account, the guides below should help you get the answers you're looking for.

Credit

I have a bad credit rating but would like a credit card that rewards on purchases. What are my options?

If you are keen to reap rewards when you spend but are restricted by a bad or non-existent credit rating, the good news is that there are still cashback cards available to you. These are not nearly as rewarding as others on the market though, so your priority should be to rebuild your credit rating to make yourself eligible for these more competitive cards in the future.

To rebuild your score you will need to use your credit card regularly, never missing a payment and always staying within the limit.

Use your cashback card to get a small reward for repaying in full every month while you work towards rebuilding your credit rating. Only get these cards if you can pay the balance off in full every month as the interest rate is likely to be higher than standard cards.

If you end up building up debt on these types of cards you could wipe out any cashback gains you might have made and risk landing yourself deeper in debt and damaging your credit rating further.

Credit cards

I'd like to get a balance transfer credit card. Is there anything I need to know before I apply?

You can reduce how much interest you’re paying and pay off the balance on your card more quickly with a 0% balance transfer credit card.

The introductory rate of interest can last anywhere from six months to over two years. This gives you more time to pay back your debt without building up any interest.

Any repayments you make during the introductory period will go towards clearing the debt rather than paying interest. After the introductory period ends, the interest will go back to its standard rate. If you still have debt to repay, you will probably have to pay a higher rate of interest.

I have paid the deposit for a caterer for my wedding on my credit card but the supplier has now gone bust. What are my rights and can I get my deposit back?

If you paid for any items for your wedding on your credit card, whether goods or services, and the supplier has failed to deliver, you may be able to get your money back thanks to an important piece of consumer protection legislation known as Section 75. This is a provision of the Consumer Credit Act that splits the legal responsibility for a purchase between your provider and the seller. Section 75 is designed for exactly this kind of situation when a wedding organiser or wedding venue goes bust, or your honeymoon or holiday is cancelled.

Can I start using my credit card the same day after a balance transfer?

You may be able to use your credit card on the same day you transfer the balance. This is known as a 'same day balance transfer'.

Some providers allow a same day balance transfer if they get the request before 5pm. But this depends on when your old provider processes the payment. Other providers will process your transfer by the next working day. To avoid unnecessary charges or late fees, you need to keep up your repayments on your old card until the balance in transferred.

I'm a student, should I get a credit card?

Getting a credit card and using it correctly while you’re at university could be a great way to build up a respectable credit history. This will give you an advantage when you graduate and seek out the more competitive cards on the market. Also you may benefit from student perks, rewards and offers that come with a student credit card.

Another advantage of using a credit card is that you will have more protection on your purchases than you would with a debit card. Under Section 75 of the Consumer Credit Act if something goes wrong, your credit card provider will be jointly liable, and you should be able to get your money back. 

Credit Report

I live in shared accommodation, will my housemate's credit rating affect my likelihood of getting a credit card?

The financial situation of your housemates should not affect your own credit rating. Your credit file is a record of your own financial history, and how you have maintained your repayments.

If you are a tenant, rather than a homeowner, the home you are living in should have no relation to your credit file, and neither should the people you live with. Credit checks are made against the individual, not against the household or address. If you see debt collection notices coming through your mailbox to someone you live with you don't need to be concerned that this will negatively impact your own credit score. The only way your housemates or flatmates will influence your credit rating is through an error, or if you fall behind on payments as a result of their actions.

Is it bad to have too many credit cards?

Every time you repay your credit balance you are showing other creditors that you're a reliable person to lend money to. This could help with future applications for larger amounts of credit, such as a mortgage.

While credit cards are a great way to borrow for short periods of time, the greater the number of credit cards you have the greater the risk from fraud.

Also, lenders look at your potential credit as well as your actual debt when deciding whether to lend to you, so having a lot of credit cards might mean they are reluctant to approve your application for even more credit. Plus you have the temptation to take on potentially more debt than you can afford to repay.

I've been told that I should get a credit card to improve my credit rating. Is this true and how so?

There are a number of things you can do to improve your credit rating but one of the most basic is simply to show that you can make repayments. This can be as simple as having a mobile phone contract and keeping up your regular payments. Any other regular repayments such as utilities bills will demonstrate you can keep up payments, and will improve your credit file. A credit card can also help in this regard: if you make modest charges on a credit card and repay the balance in full every month it will improve your credit file over time.

Could applying for too many credit cards affect my credit rating?

Too many credit searches, particularly in a short space of time, can give the impression of someone who has been a victim of fraud, is desperate for credit, or looking for credit with a poor credit history.

Crucially however it is only credit applications that will affect your credit file. There are a variety of other checks that will involve your credit file that won't impact your credit score, like ID checks and quotes. If you have the option to make a search that doesn’t leave a credit application footprint, this can be helpful if you are still at the stage of comparing your credit options.

I have bad credit, but can I still get credit cards that give me rewards?

There are some cashback card on the market that are available to people with bad credit, but they do have higher than standard interest rates so you need to be careful how you use them.

You can use your cashback card to get a small reward for repaying in full every month while you work towards rebuilding your credit rating. Only get these cards if you can pay the balance off in full every month as the interest rate is likely to be higher than standard cards.

If you end up building up debt on these types of cards you could wipe out any cashback gains you might have made and risk landing yourself deeper in debt and damaging your credit rating further.

Why have I been refused credit?

There are a number of potential reasons for this:

  • If you have missed any payments - this could have made a mark on your credit report and make you look unreliable to a potential lender. This could be anything from a loan or credit card repayment, mobile phone contract or missing a mortgage payment.

  •  You are not registered on your local electoral roll

  • You have financial ties to someone with a bad credit history

  • You have a lot of potential credit – a lender will also take into account how many bank accounts you have and how much debt you currently hold or credit you could use.  

  • You may also be victim of not even having a credit history - good or bad or of identity fraud.

  •  Many young people struggle to get their first credit card as lenders do not have a financial history to compare.

Loans

I need a few hundred pounds. Should I get a payday loan or take out a cash advance with my credit card?

Authorised overdrafts are probably the cheapest way to ensure you have access to an emergency fund and are easy to set up. You should approach your main bank provider to whom your salary is paid and request an overdraft facility. They will run a credit check to authorise this. Credit unions are another good alternative. These financial co-operatives are member-run and offer better rates for small loans under £4,000. Payday loan providers charge very high rates of interest and are not advisable. Withdrawing money on a credit card is expensive, with 2-3% fees just for withdrawals, although as a last resort they are still a better option.

Would a personal loan be the best option for me to buy a new car?

There are a number of ways to pay for a new car, including a personal loan, overdraft or using your savings that you have built up in advance. There is also the option to use car finance, which may be offered to you in the showroom.

Whatever option you choose, it is very important to be clear about the interest rates and fees you will need to pay, including any arrangement fees and penalties for paying off the loan early or missing payments. Ask for more information if you are not sure exactly how much you will be paying each month, and overall.

General

I'm going on holiday for 2 weeks. My friends are all taking cash with them but I'm reluctant to do this in case I lose it – what are my other options?

There are a number of options including travellers’ cheques, credit cards, prepaid cards and debit cards. You are right to think that cash is a more risky option, as it will be easy to lose. Whatever option you choose, make sure that you keep all valuables, including cards and wallet, in your hotel safe whenever you are not using them. If you are using a credit card, choose one that does not make extra charges for using it abroad, and remember to choose the option to pay in the local currency, as you will receive a better foreign exchange rate.

My partner wants to open a joint account. What are the risks?

When you open a joint account with a partner or spouse you are linking your finances together, so it is a good idea to think through the options before taking this step.

It can be very convenient if you are sharing the cost of rent or mortgage, as the money from your joint account can be used to pay for your household costs. When you open a joint account with someone, you create a financial link. If you both have a good credit score, this can improve your chances of being approved for a mortgage. However, if one of you has a poor credit history, this could affect the score. A joint account gives your partner access to all your money, so your relationship should be on secure footing. Should one partner choose to withdraw or spend a large amount of money you have no legal ground to get it back if it's a joint account.

I've just started my first job out of university. When should I start saving into a pension?

The short answer is – as soon as possible. If you start making small, regular pension contributions as soon as you start work you will have many years to grow a decent sized retirement fund. The sooner you start saving for your retirement, the longer your money has to grow, and the bigger your pension pot will be. While it may seem a long way off to start saving for a pension when you are in your 20s or 30s, you can start with small contributions and increase them when you get a pay rise. 

When you save into a pension the government gives you an incentive in the form of tax relief. This means that you get extra money paid into your pension fund in addition to the contributions you make. Everyone can get tax relief on their pension contributions, up to a certain level.

You can get tax relief up to 100% of your annual earnings, although in practice not many people would be able to make a pension contribution that is equivalent to their total salary.