Credit Explained

There are so many different types of credit available but it is a bit of a minefield 

Credit explained – my guide to what types of credit that are available for you…

Which types of credit are good? Which types are bad? and how do you check your credit score for free?

Let me get the very worst one out of the way first. This is the one you should avoid completely…

Pay day loans

Pay day loans are short term loans offered to you to ‘make ends meet’ until your next pay day. Borrowing £50 for a week doesn’t sound too bad until you look at the facts. The interest on pay day loans can be over 3,000% so that £50 is going to cost you so much more to pay back – This is one of the fastest ways to get yourself into huge amounts of debt. Most people who rely on a payday loan will need to rely on another the following month and this can spiral out of control pretty fast.

Store finance or store card

This is another baddie and a big no-no on your credit report. 

Store finance is when your purchase household items from stores such as Brighthouse, Perfect Home, Pay As You View etc. These items are usually quite expensive and they also have a high APR (Average Payment Rate – the amount of interest you will pay on your item total)  some as high as nearly 70% so you certainly won’t be getting a bargain with any of these!

A store card is when you are able to purchase clothing from a certain retailer on a credit card type card and pay it off over time, or in full when the bill comes in if you wish. These usually have a high APR rate.


This is when your bank allows you to temporarily take money out of your current account.

Interest on this can be pretty high so it is best to pay back quickly and not ‘live in’ your overdraft. 

Make sure you have a overdraft in place otherwise if you spend more than you have in your bank you will be left with bank charges.

Credit card

Credit cards have a massive impact on your credit report. Staying well within your credit limit and paying your balance in full each month will leave you with a great credit score. Missing payments, exceeding your credit limit and having too many credit cards can result in a poor score. 

Make sure you pay as much of the balance off your credit card each month and also think about switching to a 0% balance transfer credit card which can get rid of the interest meaning you are only paying the credit card debt.

I have more information on credit card comparison here…

Secured loan

A secured loan is when you take out a loan and it is secured on your house. So if you don’t keep up the repayments, your home can be taken from you.

The good thing about a secured loan is low interest rates but the downside is you could have your house repossessed if you don’t keep up repayments. 

Unsecured loan

An unsecured loan is a loan which isn’t secured against your home. If you miss a repayment you may end up with charges which can make the debt spiral out of control pretty quick. If you end up falling into debt with the loan then you could face court or debt collectors turning up on your doorstep. This usually comes with high interest rates too.

Can I check my credit score for free?

Yes, NEVER pay for checking your credit score – I hate the ‘free trial’ credit reports too because it is so easy to forget to cancel and you could have £14.99 taken from your bank account with no way of getting it back.

Clear Score offer a free credit score for life as well as tips to improve your credit rating.

Where can I find the best deal on loans?

I now have a comparison tool on my website to bring you the best deals on loans. Always make sure you can afford repayments on a loan before you take one out.

Is there an alternative you can do to raise cash such as selling your belongings you no longer need or use on websites such as eBay? 

Check out the loan comparison tool here…

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