The dangers of being a credit tart

- Understanding your credit score
- Check your credit score online
- Are you on the credit blacklist?
- Get it right when credit is tight

With credit becoming harder to get and more expensive to repay, the idea of staying loyal to the lenders who already supply you with cards, loans and mortgages can seem absurd. If there are better deals out there, why not go for them?

But before you launch a quest for the best credit, you need to know how being a credit tart can damage your finances - and leave you with more problems than you had when you started.

Danger: Applying for credit at random

You might think it's quicker and easier to put in multiple applications for credit. That way, you'll see what you qualify for and can compare real-life deals, instead of spending time on research.

Unfortunately, there are no short cuts and you will end up with footprints all over your credit history. These are the records of searches made by lenders in response to a full application and they stay on your record for the next year. When other lenders see them they may think you are desperate for money or even that a fraud is being planned – and your credit rating will suffer.

It’s better to check out personal finance and price comparison web sites, the personal finance pages of the papers and specialist magazines before you make any enquiries. When you do approach a lender, be sure to make it clear that you only want a quotation which will not leave a footprint on your credit report.

Danger: Shifting from credit card to credit card

Interest-free periods on balance transfers and zero per cent on new purchases for a limited period can offer a respite if you’re hard-pressed for money but there’s no such thing as a free lunch - or a risk-free credit deal.

Watch out for fees for balance transfers - somewhere between two and five per cent is normal. You should also read the small print carefully. Any repayments you do make will almost certainly come off new spending first, leaving the debt you transferred to mount up even more rapidly.

Instead, you should use the interest-free period to repay as much of your outstanding balance as possible. That way you really will save money.

Danger: Forgetting when an interest-free period comes to an end

Many retailers offer a year or more interest-free on major purchases, such as furniture and white goods. Take advantage of these offers but always remember that you eventually have to repay what you owe or you could end up racking up massive interest - 30 per cent or more is common.

The same warning applies to loans taken out as special offers - for example, banks often run loan sales to coincide with the High Street sales after Christmas and in the summer. The headline interest rate may be two per cent off but it will almost certainly rise after an introductory period.

During the interest-free or low-interest period, aim to save as much as possible of the total you owe. Put it into a high interest ISA and you could even end up making a profit on the deal.

If you can't put aside enough to wipe out the debt when it becomes due, knock off as much as you can when the repayment freeze ends and take out a cheaper loan to repay the rest. You could easily halve the interest repayments this way and clear your debt more quickly.

Danger: Remortgaging or extending a loan

This can be a way out of cash-flow problems but, like all credit deals, it can have a downside. In this case, it’s simple - although you have liberated some cash and negotiated cheaper monthly repayments, you’ll be paying off your borrowings for much longer. In other words, you’re swapping a short-term benefit for years more debt, which will, inevitably, cost you more in the long term.

If you think this is a good way out, be sure to compare deals and look for one that does not carry stiff early repayment penalties, so that you can increase your repayments when your financial situation eases or take advantage of a windfall, such as an inheritance, to pay off the loan totally.

Getting it right

Your first port of call when you want to get a new credit deal is your credit report. This is the history of your credit commitments, such as loans, cards and mortgages. It includes your repayment history, list all the searches lenders have made in response to applications in the last 12 months and features information such as county court judgments against you and whether you have been bankrupt or taken out an individual voluntary agreement (IVA) over the past six years.

It gives you the bigger picture of your overall borrowings and how well you are managing them, so you can easily see whether you can afford more credit or whether you need to tighten your belt and repay more of what you already owe.

Because lenders check it whenever you apply to them, it is crucial that your credit report is up to date and accurately reflects your circumstances, so you should check it regularly. Look for misunderstandings, such as full searches leaving footprints when you only wanted information, and contact the relevant lenders to sort them out.

Generally, a credit report that shows you are not over-stretched and make your repayments on time and in full helps you to get better deals, so you may decide to work on improving it before you apply for more credit.

You can see your Experian credit report for free with a 30-day trial of CreditExpert, the UK's leading online credit monitoring and identity fraud protection service.