What is credit?

Simply put, credit gives you access to money now and you agree to pay it back over time, usually with interest.

Credit can be useful if you’re planning a large purchase.

How much it costs you to borrow money depends on a number of things like:

• how much you borrow.
• how long it will take to repay.
• how much interest is payable as per your APR.

What is an interest rate?

The amount of interest you’ll pay is usually worked out as a percentage of the money you borrow. 

The higher the percentage of interest, the more it will cost to borrow.

Paying interest on what you borrow.

Interest on borrowing is a cost. When you borrow for things like a mortgage, a credit card, or on a Black Horse FlexPay account you may also have to pay back a percentage of interest. Borrowing could include other fees and charges, as well as the amount of money you want to borrow. 

What is a credit limit?

A credit limit is an agreed amount that you can borrow up to. 
You’ll usually find you have a credit limit on things like store cards, arranged overdrafts, credit cards or on a Black Horse FlexPay account. Going over a credit limit may mean being charged additional fees, and it may also impact your credit score

Making regular payments.

The most common way to repay credit is with monthly payments.
Making your payments on time is important to avoid extra fees and charges.
Late payments could impact on your ability to borrow in the future.
All the terms and conditions around what and when you pay should be in your credit agreement.

Does your income cover your repayments?

Budgeting - A budget can help you see what money you have coming in and going out every month – so you can get a clear picture of your finances.
Why budget? A budget is not just for reducing debt. It can help you save, manage your money and plan for things like investments or taking out credit.
The aim of a budget isn’t to restrict your spending, but to help you make the most of your money.

How to budget

a) What money do you have coming in?

Start by listing all the money you receive. So that could include:  

• Wages from your job or income from self-employment. 
• Benefits, like disability allowances, tax credits or Universal Credit. 
• Investment income. This could be money from savings, investments, or property.
• Pensions. 
• Gifts and inheritance.

b) What money do you have going out?

Don’t forget things like:

• Your rent or mortgage. Include any service charges, ground rent and site fees.
• Household bills. This could include utility bills like council tax, TV Licence, streaming subscriptions, water, gas, electricity, phone and internet, as well as things like home and pet insurance.
• Debt repayments.

c) Are you paying off any other debts?

Consider how much are you paying for credit cards, loans, car finance or store credit.

d) Travel costs.

How much does your car cost when you include fuel, tax, tyres and insurance, or what you spend each month on using public transport.

e) Living expenses.

What are you spending on food, toiletries and clothes?

f) Healthcare.

Do you pay for regular prescriptions or healthcare appointments?

g) Care costs.

Any care expenses, such as childcare, nursing costs or care homes, or child maintenance payments?

h) The fun stuff.

The money left over for things you enjoy, anything from going out for dinner or to the gym or funding your hobbies.

i) Less frequent costs.

Things like your car’s MOT, passes for entertainment attractions, public transport passes and some insurance policy renewals only happen once a year, or once in a while. You might also buy birthday gifts and seasonal clothes a few times a year.

j) Savings & Investments.

Money you put aside to cover those one-off costs for something unexpected, like a boiler or car repair, or money you invest.

k) Unexpected costs?

Plus, it's worth thinking about the one-off costs that could come from something unexpected, like a boiler or car repair.

Once you’ve made a budget, it can help to check it regularly. You might want to update it if:

• Your income has changed. Has it gone up or down?
• You have more or less money going out of your account. Do you have more or fewer expenses?
• You’ve paid off any debt. This could free up money to save.
• You have future expenses. Are there any large purchases coming up?

Budgeting in this way can help you establish if your income can cover the repayments for any new credit product.