The news is currently full of stories about the ever-worsening credit crunch. Because of this we have come up with our at-a-glance guide to what is going on in the world of personal finance, how it will effect you and how you can reduce its effects.

Contents

1. Credit cards & loans
2. Savings
3. Mortgages
4. Tips to further reduce the effect of the credit crunch

1. Credit Cards & loans

• Providers have tightened their lending criteria for new credit card customers
• Providers are also reducing their exposure to risk within their client base
• Millions of high-risk customers have had their credit limits reduced and/or had their accounts closed
• Those with good credit scores can still get cheap credit
• If you have been refused credit, but don’t know why, it will likely be because your credit rating makes you an unacceptable risk to lenders

What can I do to reduce the effect of the crunch?

• If you have a good credit rating, try to keep it this way. Don’t go over your credit limit, make sure you make all repayments on time and try not to use your credit card for withdrawing cash (lenders may view this as a sign that you are struggling for money)
• If you have a bad credit rating, try to fix it. To do this you will need to view your credit report and try to identify areas that may be putting lenders off. Experian is currently offering a 30-day free trial of CreditExpert so you will be able to view your credit report for free. For more information read the compareandsave.com guide on ‘How to improve your credit rating’
• Reduce the amount of interest you are paying. Compare best credit card deals to see if you can find a 0% balance transfer credit card to switch to so that you don’t have to pay interest for a while. This way you will also clear your balance more quickly
• Make your credit card work for you. If you pay off your balance in full each month, consider a reward or cash back credit card

2. Savings

• If you are a saver, you will actually be a winner in the recent credit crisis
• Banks have been struggling to raise funds. Because of this they are offering very appealing savings rates in efforts to attract more customers to save with them
• As a result, it is now possible to get interest rates as high as 6.5% on instant access savings accounts (1.25% above the Bank of England base rate)

What can I do to reduce the effect of the crunch?

• If you are a regular saver, spread your savings. Don’t save more than £35,000 with any one provider unless it is the government-backed National Savings & Investments or Northern Rock. The Financial Services Compensation Scheme will only guarantee the first £35,000 of any savings you have with each provider. Remember that they will only provide this cover per parent bank (the parent group, HBOS, runs Halifax and Bank of Scotland so if you had £35,000 in each of these banks, you would only be covered for one lot of £35,000 but not the other).
• If you aren’t a regular saver, then start saving. With interest rates so competitive, now is the ideal time to open a savings account. Remember that saving something will always be better than saving nothing. Use our savings calculator to see how much you could accumulate over the months.

3. Mortgages

• Getting a mortgage today is harder than six months ago
• The cost of borrowing is rising and repayments have been going up
• Many people are due to have their fixed-rate deals of 2 years come to end in coming months and will find it hard to remortgage
• House prices are falling month-on-month – according to Nationwide they fell 0.5% in February alone.
• Conditions have worsened for first-time buyers – especially those without a deposit
• A month ago, banks were offering 125% mortgages which would cover 100% of the house price and leave 25% of the house price available as an unsecured loan to pay for furniture, decoration and moving expenses
• These products have since been removed from the market and banks and building societies rarely lend more than 90% of the value of the property
• Those with bad credit ratings will have severe problems trying to get a mortgage
• Those who do get a mortgage will have to contend with a very high interest rate

What can I do to reduce the effect of the crunch?

• If you need to remortgage soon, it is still possible to find the money you need. Use our mortgage finder to see what is available to you and use our mortgage calculator to work out an estimate of what your mortgage repayments will be based on the interest rate
• If you want to buy a house in the near future, hold off buying and start saving for a deposit. With the market as it is, you are likely to need a deposit worth at least 10% of the price of the property. Make the most of the great rates on high-interest savings accounts and start preparing for buying your first house. Don’t buy yet because it’s a risky time for the housing market, especially if you don’t have a deposit. With house prices falling, you could end up paying more for your house than it will be worth in a few months

4. Tips to further reduce the effect of the credit crunch

• Review your borrowing. Make sure you are getting the best deals on your credit cards, loans and mortgages.
• Review your savings. Make sure you are getting the highest interest rates on your savings by comparing savings accounts for better deals. Our savings calculator will help you to work out how much you will accumulate over the months and recommend savings accounts paying higher interest rates (if applicable).
• Reduce your essential spending. Compare car insurance and home insurance and you are set to save up to £100. Search for the best gas and electricity deals and you could save up to £300 if you apply online and pay by direct debit. Follow our 'Green tips to cut gas and electricity bills' which will help you save even more money.
• Think about getting life insurance (if you have a spouse and children) so that your debts and mortgage can be paid off if something happens to you.