Credit & Debit Card Q&A special: How credit scoring works, best 0% deals, stoozing, top cards abroad

It’s the credit and debit plastic fantastic masterclass you’ve been waiting for… Martin answers all your questions on how to manage your credit card debt, which are the top cards to use abroad and the myths around your ‘credit score’. Plus find out which are the best 0% deals and how to ooze with stooze. Get in touch with the podcast by emailing [email protected] mailto:[email protected]

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

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• 1:49Martin Lewis?

  Hello, I'm Martin Lewis and this is the cunningly named The Martin Lewis Podcast. I do wonder what that's all going to be about. Now, usually much of it comes from my BBC Radio 5 live show with Adrian Childs, but this is a pod-only credit and debit card special. I'm doing it all on my Todd, taking you through a plastic fantastic masterclass and answering, I hope, a host of your questions. In this pod... How to slash the cost of your credit card debt? What are the top cash back credit cards? Credit score myth busting? The little known things they look at such as your debt ratio or your credit utilisation? The top cards for spending abroad?

• 2:31Martin Lewis?

  And the powerful consumer jujitsu you only get on credit and debit cards? Yes, section 75 and chargeback, huge consumer self defence tools. They mean your purchases are far more protected. And there's lots more too. The best way to find out is listen to it. So let's play the theme tune.

• 3:08Martin Lewis?

  So let's get into it. I'm going to start with some of your questions. Let's do some general ones to begin with. The first is from Claire, who says, what's the best first credit card for a new graduate? Please. And I've deliberately chosen this because it's an open question and I can't answer it. Because there is no best credit card. Credit cards like fire are a useful tool when used right and use them wrong and they burn. So you have to be getting the right credit card for the purpose that you need it for. Now, this question, best first credit card for a new graduate, please? I don't know what you want to use it for. Do you need to borrow? Are you using it to build a credit score? Or are you doing it because you want credit card rewards?

• 3:52Martin Lewis?

  They would be the three main categories that this falls into. And within rewards is other perks like cheap overseas spending. So let's just go back to basics here for a moment. A credit card has two purposes. The first is it's a way to spend. It's a transactional card. It's something that you can pay with. The second is it's an open-ended borrowing facility where you can continually borrow up to a limit and you're usually charged interest. That interest now is typically 25% APR, which means if you had a static balance of a thousand pounds on it over a year, you'd pay 250 quid interest. Nobody does have a static balance of a thousand pounds and you'd pay some off, but that's just a theoretical thing. But sometimes you can do it at 0%, which means it's interest-free borrowing and we

• 4:36Martin Lewis?

  will talk more about that. So you can use cards for either of those two purposes. You can do it just purely as a debt thing, almost like a loan where you make one big transaction on the credit card, hopefully at 0%. You then don't use that credit card again and you've got, whatever you've paid for on the card is effectively you borrowing at 0% and you're paying it off within the 20-month 0% period. Then it's a pure debt card, you're not really using it as a transaction card apart from the first transaction. Alternatively, we can neuter its debt and its interestability by paying the card off, and you've all heard it before, it's me catchphrase for a reason, in full at the end of each month. If you pay the card off in full, and that means you've got a thousand pounds on the

• 5:21Martin Lewis?

  card, you pay a thousand pounds, don't pay 999 pounds because then you'll still pay interest on the entire thousand pounds for the month. If you pay the card off in full, on your spending debt at least, and there are some complexities for other types of debt, you won't pay any interest. So if you were to set up a direct debit to clear the card in full each month, and you should now always be allowed to do that, then you're simply using the credit card as a transaction card, using it as a way to spend. And then, once you've done that and you're not paying interest, then you can choose, do I want it for rewards? Do I want it for cash back? Do I want it because it's giving me section 75 protection? More on all of those coming later. Or do I want it because it gives me cheap spending overseas? So when you ask me, what is the best first credit card for a new graduate?

• 6:04Martin Lewis?

  I don't know because I don't know what you want it for, but I hope if you continue to listen through the podcast, then you'll get an idea of what you want it for and I will be telling you lots of different best buys and best cards as we go through a little bit later. So keep listening, Claire. And just the fact you're a new graduate, I mean, you're now, there aren't many graduate credit card offers, most of them are just straight credit card offers, you'll be, hopefully have an income, you'll be a working person and therefore you're just looking for the best credit card for you.

• 6:31Martin Lewis?

  So that was my big broad brush opener. Hopefully that made the sense. Let's start to get into it. Another general one here from DimGioDim. Simply explain that the only situation where using credit cards makes sense is when you pay off the full balance every month, avoiding any interest or charges. Even 0% interest offers can be dangerous as they often lead to people accumulating debt. Well, I think I have already done that to an extent, but I'm going to disagree with you, DimGioDim. Look, we live in a world where sometimes people have to borrow. I would hope when people are borrowing, it's for a planned, budgeted for, one-off item of spending. Using a credit card at 0% to willy-nilly fill gaps in your income,

• 7:16Martin Lewis?

  exactly as you say, is dangerous, can potentially lead to a debt spiral, even if it's at 0%, because if you haven't got the money to pay it off, how are you going to pay it off once that 0% ends? And you've got to make minimum payments each month. But using a credit card as an interest-free way to borrow can be a very sensible move as long as you follow the right recipe of doing it for the right purpose and making sure you pay it off before the 0% ends and it is a calculated, budgeted-for, planned operation. So I agree to an extent, I disagree to another extent.

• 7:47Martin Lewis?

  So let's go into the next chapter, one of the big ones, on debt and balance transfers. And you've asked me a series of questions there. We'll start with Dorata, who says, what's the best credit card to switch to with a transfer? So she's talking about, I presume Dorata, is she? She is talking about a balance transfer. Now, that is a specific credit card deal where you get a new credit card which pays off the debts on your existing cards for you, up to the credit limit, or usually up to 90% of the credit limit. So you now owe the new credit card, but hopefully at 0% interest-free for a set period. And it is absolutely the powerhouse move that everybody with existing credit card debts that they're not clearing each month

• 8:31Martin Lewis?

  that they're paying interest on should be looking at. You should be looking to see if you can get a balance transfer deal. Do not confuse it with a 0% for purchases deal. That's completely Different, it's a balance transfer deal that you are looking for now. Dorata was asking me what the best credit cards are. Well, the honest truth is the best credit cards. I could give you a best buy list. I'll do it in a moment. But what really matters is which card will you be accepted for? What is the best card that you can be accepted for? Almost a personal best buy list. And these days, there's a way to find out that does not impact your credit file because it does a soft search. So you'll see it on your credit file, but it doesn't count as an application, which means it doesn't lower. I'm going to call it your credit score. You don't actually have a credit score, but we'll call it your credit score in common parlance. It doesn't lower your credit score.

• 9:16Martin Lewis?

  To do that, you go onto an eligibility calculator. The easiest way is to go onto a site, a comparison site, which will give you an eligibility score for lots of different cards. Effectively, they're giving you the chance of acceptance for different cards. So sometimes you may even get pre-approval where you know you're pre-approved for a card and you'll just be able to automatically get it. Sometimes you'll be given a percentage score, you know, sixty, seventy, eighty percent chance. So you can hone in on a mix of the product details, the card details itself, but also your percentage eligibility eligibility score. But it's always worth it saying on eligibility score. Some people get in touch with me and they say things like, I only got a twenty percent eligibility score. There's just no point in applying. That's not correct. If you need to do a balance transfer, it's a very important thing for your finances. It's cutting the cost of your debt.

• 9:59Martin Lewis?

  A twenty percent eligibility score means two in ten people in your circumstances will be accepted. You may as well go for it. If it's important, go for it. You might be one of those two in ten. Anyway, Dorata's question is about best buys. Let me run through them very quickly. I'll just give you a selection. The longest zero percent balance transfer cards on the market are Barclaycard and Tesco, both offering thirty-two months zero percent with a three point one nine percent fee. What that means, it's a one-off fee of the amount of debt that you shift. So if you had a thousand pounds debt that you were shifting, then when you shift it because of the fee, you would have one thousand and thirty-one pounds and ninety p debt that would be at zero percent that you had thirty-two months to clear.

• 10:44Martin Lewis?

  There's also an HSBC card that's up to thirty-two months zero percent. What that means is some accepted customers only get twenty. Six months zero percent with a bigger three point four nine percent fee. But I'm going to go right to far, far shorter to highlight something else for you. There's another Barker card that's up to fourteen months zero percent with no fee. So if you can clear the debt very quickly, well, because there's no one off fee, that would be cheaper. Although not every customer gets fourteen months, some get seven months. So my general rule when you're picking balance transfer cards is you want to go for the card with the lowest fee in a time that you're certain you can clear the debt. So clearing the debt's more important. Go longer if you think you may need it.

• 11:27Martin Lewis?

  And if you're unsure, just go for the longest card because the one off fee is trivial compared to the interest that you will be charged once the zero percent ends, which is now typically around twenty five percent. So you want to make sure you clear that card before the end of the zero percent period. Make sure all the debt has gone. Make sure you never miss a monthly repayment or you can lose the zero percent as well. Don't spend on this card. This debt is usually just cheap for debt shifted to it. It's not cheap for new spending on the card. And make sure that you shift debt to it normally within the first sixty or ninety days because that's the opportunity that you get. So that's balance transfers. Next question is from Claire Devine who asks, take the balance transfer to another zero percent or pay it off?

• 12:13Martin Lewis?

  Safest answer, pay it off. If you've got the money to clear a zero percent debt, just pay it off. You're debt free, you're far better off, you can get on with your life. Sophisticated, financially savvy, people who know how to play the game answer, keep it at zero percent. Take the money you've got to pay off the card, put it in the highest interest savings account you've possibly got. So you can be currently earning five percent in a cash ISA. Make sure it's easy access so you could take the money out to clear the card whenever you like. And that's technically called stoozing. You're deliberately creating a zero percent debt in order to earn interest on the money that you're not paying off, but you could pay the card off at any time you wanted. If you are going to do that, then you want to make sure you really minimize the fee or that would hit into any gain.

• 12:53Martin Lewis?

  But for most people who don't play the game, just get rid of the debt, clear the debt. Joe has a comment. Cut costs on credit cards, pay off in full every month. Shops often have finance options that are way cheaper than the extortionate amount of interest credit cards charge you. Again, general principles, I'm somewhat in agreement. However, I do disagree. Most of the buy now, pay later options you have out there are interest free for three months. You contrast to that to the longest 0% credit cards. You've got M&S Bank on spending. These are spending, so not balance transfers. This is when you spend on the card borrowing. You've got 24 months 0% Barclaycard, up to 24 months 0% Lloyds, up to 21 months 0%.

• 13:37Martin Lewis?

  They also have the advantage that A, credit cards are regulated. So if you have a problem, you can go to the financial ombudsman. Buy now, pay later is not currently regulated. That should be coming in at some point. It has been announced that it will be regulated, but it isn't currently. And you also have the advantage that credit cards have Section 75 protection. Now, at this point, I want to break in and just talk about the protections that you get when spending on plastic that you don't get when you spend by cash or by cheque or via bank transfer. And it's very important to understand that that is one of the things that makes plastic fantastic, these extra protections. There are two of them.

• 14:21Martin Lewis?

  The most powerful, the real consumer voodoo, is called Section 75, Section 75 of the Consumer Credit Act. And it states that if you buy something on a credit card and it costs between £100 and £30,000, the credit card company is liable for the entire amount. And it's in fact jointly liable with the retailer. All the rights you have with the retailer, you have with the credit card company. And crucially, this applies even if you paid for any amount on the credit card. What do I mean by that? Well, You put one p of a thousand pound purchase on the credit card and you pay the rest by bank transfer. The credit card company is liable for the entire amount, not just the penny.

• 15:05Martin Lewis?

  And I've had examples where someone put a deposit for a kitchen of a hundred pounds, and the kitchen was sixteen thousand pounds on the credit card. The rest was paid by bank transfer. The kitchen company went bust. They went and asked for the credit card company for the money back. The credit card company said no. They went to the Financial Ombudsman Service and they were awarded all of the kitchen money back. Because you have to use a credit card, not use a credit card for the entire purchase. So it's incredibly powerful. And section seventy five means, as I've said, the credit card company is jointly liable with the retailer. Jointly. You have a choice whether you go to the retailer or the credit card company for all of your rights, including faulty items. Now, usually, it's far simpler to go to the retailer, so I would, but you can go to the credit card company, especially

• 15:48Martin Lewis?

  useful if it's something that you bought abroad. But equally, and it's also good, of course, if the retailer's gone bust, then you've got the credit card company as your backup option. And that's when people tend to use section seventy five. But equally, it is worth noting that if you have a dispute over a faulty product with a retailer, you'd have to go to court, which judges on the law. If you have a dispute over a faulty product with a credit card company, and they will often try and push you to the retailer, but they don't have a right to, then you can take them to the Free Financial Ombudsman Services, which looks at the law and looks at fairness. So it can be easier to get justice at the ombudsman than it is to get justice in the court. So remembering section seventy five is crucially important. Now, for cases on plastic where section seventy five doesn't

• 16:32Martin Lewis?

  apply, so credit card transactions under a hundred pounds, for example, or all debit card transactions, you've got chargeback. Now, chargeback, you normally need to be spending over ten pounds. It does depend whether it's Visa, Mastercard or Amex, because this is a rule of Visa, Mastercard or Amex, that's effectively set up to say, if you paid for something on one of these cards, and you didn't get it, and almost all cards, debit cards and credit cards are Visa, Mastercard or Amex. If you paid for something on one of these cards and you didn't get it, then you should be able to get a refund, or you should get your money back. Or if you paid for something and it wasn't suitable, compared to what you asked for, you should be able to get your money back. Now, the way you do a chargeback is you ask your card firm, so that could be a bank if it's a debit card,

• 17:15Martin Lewis?

  your credit card firm if it's a credit card, to do a chargeback on whoever you paid. Merchant account, the retailer's account if you like. So you say, I want you to do a chargeback. So they're asking for the money that you pay to get it back and it gets put back into your account. And chargeback is also a strong protection, not as strong as section 75, but a strong one. Ironically, even though section 75 is stronger, sometimes you may find it easier to get a chargeback done by your bank or credit card company because they're asking another company to give them the money. Whereas on a section 75, then it's the credit card company itself that is giving you the money back. So sometimes they might prefer to do a chargeback. You don't give a monkey's as long as you get the money in your pocket.

• 17:58Martin Lewis?

  But that's why paying on plastic gives you a lot more powerful protections than paying any other way. So you don't get this protection when you pay by cash or cheque or by bank transfer or via pay now, pay later. You only get this on debit or credit cards. My next chapter is on your questions on credit scoring and there are a lot of them. So let me just give you some basics before I get into answering the questions because it'll help me get through. So there are a lot of myths and misunderstandings out there about how credit scoring works. The first thing to say is you do not have a credit rating or a credit score in the UK. There is no single number that dictates if a lender will accept you.

• 18:42Martin Lewis?

  Each lender scores you based on its own wish list of what is a profitable customer. And that's crucially important to understand. Now, I know that some people will be saying, hold on, hold on, hold on. I have a credit score. I know what my credit score is. Now, what you've done is you've gone to a credit reference agency and it has done an assessment of you, looking at the data on your credit file to say, this is how a typical lender may look at you. But each lender does score you differently. Now, there are some lenders who might take some of the information from the credit scoring system and factor that into their score. But it's important to understand there is no universal system going on here.

• 19:24Martin Lewis?

  So when people get their credit score from a credit reference agency and they get in touch with me and they say, my credit score has just moved by three points.

• 19:35Martin Lewis?

  Actually, three points is neither hidden nor tither, it's just a loose indication. If it dropped by 200 points, there's clearly something substantial going on. But if it's moved by a few points, I wouldn't sweat it because it isn't an actual thing. It's just an illustration of what's going on with your credit scoring situation. So, carrying on in the podcast, I am going to use the phrase credit scoring to dictate what a lender does when you apply. But ultimately, there is no one credit score that you have. Now, what does matter in credit scoring is your credit file. You should check it annually and before you do any applications. That, your credit file is the one that lists key information, the products you've got, if you've paid them on time, any court rulings or electoral roll information about you.

• 20:19Martin Lewis?

  And you should go through your credit file line by line. Even small errors can mean rejection. If you're just doing a general checkup, then checking one agency is fine because errors tend to be similar on all of them. But if you're making a big application like a mortgage or an important balance transfer, I would check all three agencies, which are Equifax, Experian and TransUnion. And there are ways to check your file for free on all of them. In fact, you have a statutory right to do it. There are ways you can do it for free online digitally with a few different ones. I'm not going to spend time on that. Final point, my final myth bust on credit scores, is you can still be rejected even if you have a perfect credit score.

• 21:00Martin Lewis?

  When you apply, firms use the information from your credit file, that's what's going into the credit score you've got. The information that you've put on your application form, well, that isn't in the credit file, so that's different information. And information from any past dealings that specific firm may have had with you. Now, the important thing that is on your application file that is not in your credit score is a really, really big one. It is, wait for it.

• 21:28Martin Lewis?

  Your income, how much you earn. So let me explain this in a really plain way. If you're applying for a £10,000 loan and you have no income, you're going to be rejected even if you have a perfect credit score. Because you fail the affordability test. So don't think that your credit score, especially the one, the illustrative ones you're getting from credit reference agencies is the be all and end all.

• 21:54Martin Lewis?

  Okay, having done all that, let's go into your questions. Angela says, what's the best credit card for young adults to help with building credit scores? And how best to use it? Well, the answer is any one that they can get. There's a catch 22 when it comes to credit scoring. The way that credit scoring works is they look at all the information that they have on you in order to try and predict your future behaviour. So you can get rejected for a number of reasons. One, if your past behaviour makes it looks like you'll behave poorly in future. You might be a high risk or a non-profitable customer. Or two, simply because they don't have any data. If they don't have any data on you, they can't predict your future behaviour. So they don't want to take a risk. And that's the problem for many young adults starting out on independent finance.

• 22:37Martin Lewis?

  And so in this weird way, you have to have credit to get credit. So how do you get credit in the first case? Which is what Angela's question is all about. Well, you get any card that you can. Now, most young people are going to be rejected for most mainstream cards because they fail the credit score. So you want a credit rebuild card or a credit building card. And I would simply go onto an eligibility calculator, put the details in and find out which credit building card you're going to be accepted for. Once you get one of them, what you then do is I would spend around £50 a month on it. Making sure you pay the card off, block your ears in full every month. So that there's no interest cost to you. I mean, paying it off in full each month won't necessarily improve your credit score.

• 23:22Martin Lewis?

  It just means there's no cost to you. And by paying £50 each month and paying it off on time, do it by direct debit. So you're sure you're never missing or being late on a payment. You will start to build yourself a history as a good credit citizen, which will in future enable you to be able to get other forms of credit. Now, if you wanted to be really clever, you'd get the first one, you'd have that a couple of months, then you apply for a second rebuild card, you'd have two of them working in sync, and you'd be putting 50 quid roughly each month, just normal spending. I'm not saying false spending, go and do whatever shopping you're doing in the supermarket on it, and just put about 50 to 100 quid on each card, pay that off in full, and that can help you build your credit history more quickly.

• 24:02Martin Lewis?

  My one caveat here, though, this is great for sensible young people who understand finance and understand that they're doing this tactically as a way to build credit in order to help you get a future mortgage or any other form of borrowing that you may need. Where it's really bad is somebody getting one of these credit cards and not understanding that this is debt, and that if you spend on it and don't pay it off, you're going to get yourself into debt, you could hurt your credit score, and it could stop you borrowing for many years in future as well as being really expensive. So I don't know, Angela, whether this is for you, I don't know whether you're a parent asking for your child, it's very important to consider, can you handle the plastic? Or is it too hot for you to hold? In which case, it's safer just not to do this and to put it down. Next question, NatStig.

• 24:46Martin Lewis?

  Applied for a 0% card that I was pre-approved for last week. I have a very good credit rating and excellent affordability, but I got turned down. Orks, that's NatStig's orks, not my orks, I'm not sure I throw an ork in. What on earth did they look at that wasn't in the pre-approval? Well, if you've been pre-approved, that means you've passed the credit score. The next stage after pre-approval towards getting the card is generally an ID check. So certainly, from everything you're saying, you've got a good credit rating, credit ratings don't exist, but I know what you mean, and excellent affordability, why have you been turned down? There's an ID error going on here. Now, this could well be that your address might even have a different format to the one that they've got on their files.

• 25:29Martin Lewis?

  I'd go get your credit files, I would check on your credit files, exactly what address details that they've got for you there. There's something going on with matching up your ID with the data that they hold on you, and you need to go and check that out. Next question is Fleetwood Fox, who says, "If you've paid off a credit card, should you close it down? Or if you've transferred the balance to another card, should you close the previous card?" Wow, what a question. And it's way more complicated than you think. So the first thing, the simple thing is, some card firms like evidence of longevity. So closing down a card and lots of change going on and you're foul is seen as a negative. So that is one aspect for keeping it open. Others would prefer you to have less available credit. So that's quite good.

• 26:13Martin Lewis?

  But this gets complicated. And this is a good point for me to get in to the underbelly of how credit scoring works.

• 26:26Martin Lewis?

  There are three main things that lenders look at when they're trying to assess you. Three calculations that build in, and how they weight them depends on exactly what you're applying for and their own factors. But let's just go through them. There's your debt ratio is number one. Credit utilization is number two. And disposable income is number three. Now, in the first two, debt ratio and credit utilization, the bigger your percentage, the worse it is. So let's start with debt ratio. This is the amount of unsecured debt you have. So that's generally credit cards or loans, not mortgages, not student loans. So unsecured debt as a percentage of your annual income.

• 27:11Martin Lewis?

  So if you earn £50,000 a year and you have £5,000 of unsecured debt, your debt ratio would be 10%. Under 20% is excellent. They'll obviously have no debt at all. We've already talked about that being a problem. 20% to 40% is good. 40% to 60% is okay, but not great. Over 60% is bad. How do you improve your debt ratio? Quite simply, you reduce the amount of debt. You pay off some of that debt or you increase your income, which is obviously just as difficult to do. The second one is really interesting for Fleetwood Fox's question about closing down an old credit card, because the second one is credit utilisation.

• 27:53Martin Lewis?

  This is the percent of available credit that you have that you are using. So for example, if you had £100 debt on a credit card with a £1,000 credit limit, you would be utilising 10% of your available credit, but this would be added up across all your different products.

• 28:13Martin Lewis?

  So, how would you reduce and improve your credit utilisation? Well, either you can reduce the amount of debt that you've got, or ironically, you could increase the amount of credit that you have that you're not using. So you can see here that by closing a credit card you're not using, you are lowering the amount of credit that you have, you could be increasing your credit utilisation. For example, let's say you have two credit cards. One has £5,000 debt on it, and that's the maximum, that's up to the credit limit. The other, where you've, because you've balance transferred it across from this card, has a £5,000 credit limit, but you now have no debt on it because you shifted it

• 28:58Martin Lewis?

  to the other card. So in total, you've got £5,000 debt and £10,000 of credit. Your credit utilisation is 50%, which would put you in the okay category. If you've got rid and closed down the other credit card, your credit utilisation, if this was all the credit that you had, is now 100%. That puts you in the poor category. So you can see that closing the old credit card in those circumstances could drop your credit score. Now, where this gets more complicated is credit utilisation is really looked at in the light of debt ratio. Let me try and explain. So let's imagine someone earns £100,000 a year, has £1,000 debt on a credit card, and that's their credit limit. Their debt ratio is very low, it's 1%.

• 29:42Martin Lewis?

  But their credit utilisation is 100%. It's not going to make that much difference. If you've got a very low debt ratio, credit utilisation isn't such a biggie deal. But if you had a high debt ratio, i.e. your debts were 30,000 and you earn 50,000, in that case, credit utilisation matters far more. So I go back to Fleetwood Fox's question, if you've paid off a credit card, should you close it down? I think if you have a very high debt ratio, a lot of debts compared to income, I would be slightly careful because the longevity and the credit utilisation issue may make it a bad thing. If you don't and you're not very substantially in debt, then getting rid of your old credit card, because it means you've got less available credit that you could be borrowing, can be seen as positive too by some companies.

• 30:27Martin Lewis?

  And also, you may count as a new customer in the future, so you may get some new customer gains if you close that card down now, then you may as well close the card down and just clean things up. The only other aside I would make is some card companies, Barclaycard Company does this, MB&A does it as well, is they sometimes send existing customers who have no debts balance transfer offers. So they might say, "Hey, why not shift debts from your other cards to those at 12 months 0%?" And that will often be done without a credit score going on your credit file, in which case that's worth having. So if you had one of those cards and you might need a balance transfer in future, it might be worth keeping them open just in case they tend to send you that offer. Now, I'll just finish off because I said there were three things, debt ratio, credit utilisation, the third one is disposable income.

• 31:10Martin Lewis?

  That's literally the spare cash you have each month after bills and essentials. Now, when you're getting a mortgage, that's individually calculated, so frugality in the run-up to getting a mortgage helps, but when we're talking credit cards and loans, it's generally done by statistics. In other words, they're not looking at your account, they're looking at what someone in a similar position to you in the same postcode who has similar circumstances, what their disposable income would be. So frugality in the run-up doesn't really help. Of course, in disposable income, bigger is better, it's the opposite to the other two. But changing your disposable income, you can't change it by cutting your bills, although cutting your bills is always good for you and improving your disposable income is a good thing, you can change it by increasing your income.

• 31:49Martin Lewis?

  So, few more of these credit scoring ones. More asked me, when changing bank account to obtain a new debit card, does it create difficulties in obtaining credit mortgages in the future? Why is date with bank included on most credit card apps? Yet longevity, especially with bank accounts, is seen as a positive. So my general rule on switching banks, which can be very lucrative, because time has a big factor here. I wouldn't be applying for a new bank account if I was within three months from getting a new mortgage. I would wait to do it until after I had the mortgage. Same with lots of credit card applications. Three months or maybe even stretch it to six months before a major important application, I wouldn't bother. But if you don't have any major important applications,

• 32:33Martin Lewis?

  then switch your bank account if it's right for you and do your credit card applications. And remember, if it's a balance transfer, if you're trying to cut the cost of existing debt, that really is important.

• 32:43Martin Lewis?

  John 29D, we're not on the publicly available voting register. So even after living in the same house for decades with many other financial products, the card companies say they cannot verify us. Why don't they use more robust systems? There's an error of assumption, I think, in your question, if you forgive me, John. The electoral register is quite important for your credit score, being on the electoral register. But there are two elements to this. There is the full register. And with the full register, that means that your details can be sold on for marketing and data purposes to other companies. But you can opt out of the full register, or the open register as it's called, so that your data is not sold on.

• 33:26Martin Lewis?

  If you do that, that does not affect the credit reference agencies and it does not affect credit checking. It's only about the marketing element. So if you don't want to get all that junk mail, absolutely opt out of the open register. Now, you said to me that you've done that, we're not on the publicly available voting register. And from your question, it seems to me that you're linking that... To them not being able to verify you. I don't believe that's correct. I don't believe they are linked. This is another one of those ID issues. Go and get your credit reference files from all three credit reference agencies. Look especially at the formatting of your address details. Do you also often have difficulty with information when you're putting it into a postcode checker for them to match up your address? That is likely to be the most common cause of this.

• 34:09Martin Lewis?

  This is about ID checks rather than credit scoring issues and not being on that register. It can be really frustrating when it happens, but that's what I'd be urging you to investigate. And that gets me to the end of the credit scoring section that we did a lot in there. I quite enjoyed that. I quite like the nerdy detail in there.

• 34:28Martin Lewis?

  Let's move on to the next one now, which are reward cards. Both cash back cards and travel cards. So we'll start with AJ Woody. I used to spend from a Chase account for the 1% cash back on everything. Since that's cut, what's the next best option to get anything back? Happy to go either credit or debit card. I use Tesco credit card for my food to boost the club card points if that makes any difference. Well, it sounds like you've got quite a reasonable option. You've got the Chase card. It's a debit card. It doesn't affect your credit score having it. Chase has recently cut its cash back from 1% on everything in the UK and abroad, or 1% on nearly everything, to 1% on just groceries and groceries and fuel and UK transport, so you know, trains and buses and things. Which is obviously a lot less cash back and it now only does it in the UK. It doesn't do it abroad.

• 35:14Martin Lewis?

  So exactly which card you're going to get to replace it? I mean, there are a lot of them out there. I'll just give you a few for you to look at. The best payers always tend to be American Express credit cards, although they are not as usable in quite as many paces as Mastercard and Visa. So you've got the Amex Everyday Credit Card, which pays 5% cash back at the moment for the first five months up to a maximum £125. That's important. Normally it's 5% for three months up to a maximum £100. So this is quite a good time to get one, especially if you've got any big purchases that you would need to do. And then it pays afterwards 1% cash back on spending over £10,000 and half a percent cash back on spending below £10,000. But to get any cash back on it at all, you have to put over three grand a year on it.

• 35:59Martin Lewis?

  Now, three grand a year, especially if you've got a family and you're putting all your grocery shopping and everything on it, isn't too difficult to do, especially to get that big hit in the first few months. So Amex Everyday Credit Card is worth looking at. You've also got the Amex Gold card that works in a similar way but gives you points and gives you shopping vouchers. I won't go into too much detail. Top non Amex reward card is the Barclaycard Reward Card, which gives you half a percent cash back until the 30th of September on spending in the UK and abroad, and it's got near-perfect exchange rates abroad too, so it is also one of the top cards for spending overseas. After the 30th of September, it's a quarter of a percent cash back. So that's probably the best all-round giving you cash back on everything, those two cards.

• 36:41Martin Lewis?

  As always though, as they're credit cards, only do this if you pay off the card in full every month. Lyn asks, "What's the best credit card for travel to the USA and Australia?" It's the same answer as for everywhere else in the world. So this isn't just for Lyn, this is for everyone. When you spend on plastic abroad, be it a debit or a credit card, the bank or the card company usually gets the near-perfect exchange rate on the day. The Mastercard or the Visa exchange rate is near-perfect, it's almost exactly the spot rate barring negligible amounts of difference. So whatever the perfect exchange rate is,

• 37:20Martin Lewis?

  the bank gets it. But most plastic then adds an up to 3% non-sterling exchange rate fee to what they charge us. In other words, if you buy something that costs £100 worth of euros, you will pay £103 for it, including the non-sterling exchange rate fee. But the specialist travel cards out there do not charge that fee. So £100 of euros costs you £100 in pounds. As long as when you're paying, you don't allow the card machine or the ATM to do the conversion for you, then it's at whatever rate it's converting at, and that's usually a lot worse. So you always pay in the local currency. So if you're in Europe, pay in euros, don't pay in pounds,

• 38:04Martin Lewis?

  and then it is your card doing the conversion, and that is a better rate. So as for what the best card is at the moment... It depends, doesn't it always? There are three cards vying to be top pick at the moment. I've already mentioned one, which is Barclaycard Rewards Visa Credit Card. It has no exchange rate loading. It has no fee when you withdraw from an ATM. And it doesn't charge you interest on spending or withdrawals when you pay the card off in full. And you must pay it off in full because this is a credit card. Some cheap overseas spending cards will pay you interest on cash withdrawals that you make on them, even if you pay the card off in full. And that is a hidden extra cost.

• 38:48Martin Lewis?

  Plus, the Barclaycard Rewards also gives you currently half a percent cash back on your spending overseas and in the UK. So effectively, you're actually getting half a percent better rate than the exchange rate if you factor the cash back in that way. Although I've just realised that to get that half a percent, you have to apply by the end of play tonight, Wednesday, when I'm recording the podcast. If you don't, it'll be quarter of a percent, but that still makes it the best buy. So that's a current short term deal. Alternatives. Well, if you don't want a credit card and you just want an easy to get card that doesn't do a credit score. Well, it does do it. It does a soft credit score, so it doesn't mark on your credit file. And it doesn't reject anybody because of the credit score, but it does technically do a credit score. The best easy to get card is the Chase card that's already mentioned. It's an app based card. You get a new bank account, but you don't have to switch your existing bank account to get it.

• 39:33Martin Lewis?

  You just get it on the app, you get your debit card and you'll get near perfect exchange rates. And it does, as we've already mentioned, give them cash back in the UK. So it's easy to get. The final option I'd mention is if you were willing to switch bank, you could switch bank to First Direct right now, which will pay you £175 to switch to it. Its card again has, like all of these cards, doesn't add a non sterling exchange rate fee. So you get the perfect or near perfect exchange rates and also has no ATM fees. And as it's a debit card, as long as you're not overdrawn, there won't be any interest on it either. So they would be the three bang at the moment. It's also worth looking at the Santander Edge Credit Card if you're a Santander Edge Credit customer. And there's a NatWest card that's not bad. And there are quite a lot of these cards out there at the moment. But those three would be my top picks.

• 40:17Martin Lewis?

  Barclaycard Rewards because of the cash back. First Direct because of the £175 switchers bonus. And Chase, if you just want an easy to get card. And I'm sure people will ask me about prepaid cards at the moment, so I will save that until the question comes. Phil says, "When it comes to withdrawal of cash, which is needed in many places, outside the UK, a lot of ATMs now charge a fee. That's not the option of withdrawing in the card's home currency, but a non-opt-out usage fee." You are right, Phil. I agree with you. So, I've said that none of the cards that we're talking about charge you a fee for using an ATM or withdrawing cash. That is correct. The card won't, but the ATM machine itself will. Now, if you're using a specialist card, you always, as we've said, you don't want

• 41:02Martin Lewis?

  to get the card, the ATM, to do the conversion. You want to make sure that you're saying no to the conversion. And remember, they'll say, "Would you like us to convert this?" So you pay in pounds and you go, "No." And then some of these machines will go, "Really, really? Would you like us... Warning, warning, you're gonna have to pay whatever exchange rate fee it is." They're trying to scare you into saying, "Yes, let me do the conversion on the ATM." And they're doing that because it makes them a lot more money, not because it's right for you. So don't be scared into it. If you've got a proper card, and in fact, normal cards are always better just not to let it do the conversion as well. If it asks you, "Do you want to pay in euros or pounds?", pay in euros. If it asks you, "Do you want to pay in dollars or pounds?", pay in dollars. Pay in the local currency. Don't be scared into going the other way. Anyway, but Phil's question is, there will be an ATM fee on top.

• 41:45Martin Lewis?

  In which case, I've done this experiment when I've been away. I've gone to three or four different cash machines and there's often a different fee. You're just looking for the one that charges you the lowest fee and you want to withdraw as much cash as you're going to use, as long as you feel safe holding it in one go, because the fee is often a fixed fee. So, you know, a two-pound fee on £300 is a much smaller percentage than a two-pound fee on £50. So withdrawing lots of little £50 if you're gonna withdraw cash is expensive. You're better to withdraw £300 in one go, or you're even better just to spend on the card and then there's no ATM fee whatsoever. Now, I do know, nobody has asked me about prepaid cards. Prepaid cards are where you load money on the card in advance to spend when you go away, different from a credit card where you pay for the spending after you've done

• 42:30Martin Lewis?

  it, and a debit card where the money comes out of your bank account or out of your overdraft. So it can be a debt card. Now, some people like prepaid cards, there are big names out there like Revolut and Wise. And the exchange rates on them are pretty good, although they're not quite... The exchange rates are the same, but there are few small fees that add a little bit on top with these cards compared to the credit or debit cards. However, I wouldn't let that put you off too much. The real advantage of these cards is for those people who want to lock in an exchange rate. When you spend on a credit or debit card, you're getting the exchange rate, even if it's the perfect exchange rate, on the day that you spend. With Revolut and Wise,

• 43:14Martin Lewis?

  you can opt to get the exchange rate on the day that you load money up. So effectively, you load up in pounds, it's converted at that point into euros or dollars or whatever it is. So then you have that many euros or dollars at today's exchange rates. Why would you want to do that? Well, you might want to do that if you thought the exchange rate would get worse for you. You might want to do that if you just wanted safety and thinking, well, I can afford to spend at this exchange rate just in case it gets worse, I'll lock, worse, I'll lock it in. Or alternative, you, you might be on a hedge your bets strategy, where you want to put half of your spending money for when you go away on one of these cards locked in at today's exchange rates, and the other half you're going to do on the perfect rate credit or debit card,

• 43:56Martin Lewis?

  because that way you're hedging your bets on currency moves. I mean, that's all a little bit complicated, but I wanted to throw it in as it is an option while we're talking about this.

• 44:08Martin Lewis?

  And now I get into my last category, miscellaneous. So I've got the bet. I bought a gift card for Waterstones online, and I couldn't understand why I was charged a one pound fee, which then attracted daily interest. Apparently, buying vouchers, phone credit, etc. is classed as a cash withdrawal. Yes, it is, and also buying foreign currency from a bureau de change is counted as a cash withdrawal. Why? Quite simply, because these are quasi cash. I mean, buying people vouchers. If you want to, let's say you want to take a hundred pounds out to spend at... Marks and Spencer's, first thing that came to my head. Well, you could take a hundred pound cash out and you'd have a cash fee. Or you could go in and buy yourself a Marks and Spencer's voucher for a hundred pounds. It's quasi cash, it's a form of cash.

• 44:54Martin Lewis?

  So it's avoiding, they avoid transactions that people could utilise as cash, as ways to get cash out if they wanted the cash and not to be seen as getting cash out. Getting cash out on a credit card is generally seen as a danger signal for credit scoring. It's worth, it's worth noting that. Although if you're only doing it when you're spending abroad, it's not such a big deal. But again, you want to minimise the amount of times that you're doing it. But yeah, vouchers, phone credit, gambling, Bure de Change are all counted as cash. They're all negative for your credit file. They will all often have an ATM fee as a cash withdrawal on a credit card. And crucially, even if you pay the card off in full, you will usually be charged interest because you pay interest on cash withdrawals, even if you pay the card off in full. You pay a month's interest on it.

• 45:36Martin Lewis?

  Jay Maris 09, if applying for a personal loan, how much credit is too much credit? I think you're talking about how much is too big for the personal loan. This is quite important. So we talked earlier about affordability scoring and credit scoring. When you apply for a credit card, what is dictating acceptance primarily is your credit score. Are you, do you have a good history as a good credit citizen? Because ultimately, if you've got poor affordability, they'll just give you a low credit limit because a credit card is just a flexible borrowing facility. But when you're applying for a loan, you're applying for a specific amount. Now, clearly, someone who is applying for a three thousand pound loan has a better chance of being accepted than someone who's applying for a seven thousand pound loan

• 46:18Martin Lewis?

  from the same company, even though their credit score is identical because of the affordability test. So with loans, the affordability test and the amount that you're borrowing plays a much bigger role. But the answer of how much is too much, I'm afraid it just depends on what you earn. I mean, it's interrelated to what you earn and how much debt you have. And my final point is from Seaside, who says, "Stooser here, earning 4.75% interest while someone else pays." And look, if you're financially savvy and you're disciplined and you've got no other use for your credit, for credit, so you're not going to be borrowing, so you're not worried about your credit score, then you can become a stooser. An easy way to become a stooser, you get yourself a 0% for spending credit card. You spend on it instead of spending from your bank account.

• 47:02Martin Lewis?

  So all you quickly build up the debt on using all your normal spending and then you just pay the minimums off each month, which means you're building up a debt on a 0% card. Let's say it's a long 0% for spending card like M&S is 24 months or Lloyds is up to 21 months 0%. So you spend and spend and spend on the card until you get up to the credit limit. Your credit limit's £5,000. You've now got £5,000 debt on the card. You still make the minimum payments each month, otherwise you lose the 0% period and that would be disastrous. And at the same time though, all the money that was building up in your bank account that's unspent, you're putting in a high interest savings account earning 5% interest on it. Now, after a year, let's say you've got five grand debt on the credit card and you're earning 5% interest on five grand in the savings account from money you haven't spent.

• 47:46Martin Lewis?

  That's 250 quid a year. At the end of that year, once the credit card 0% ends, you could balance transfer it to a new credit card, making sure there's a low fee to continue gaining on it. And you could also get another 0% spending card out at the same time to build up the debt. Biggest stoos pot I've ever heard of, that's what they call it, the amount of debt that you've got stoos, was over 80 grand on someone who had an offset mortgage. It was effectively using it so they could always borrow the money back, get the money back whenever they needed it. They're effectively using all these combined credit cards to pay off a 6% mortgage. So 80 grand saving 6% on it, you know, that's what, £5,000 odd a year gain from stoosing. But it sounds fun.

• 48:27Martin Lewis?

  It's only for people who are nerdy, have huge attention to detail, know exactly what they're doing, are good with keeping a spreadsheet and diaries or timing. Get it wrong, it can hurt your credit file, it can cost you money. Stoosing is great, but better not to be a loser than be a stooser if you're going to get it wrong. And that seems quite a good way to end.

• 48:51Martin Lewis?

  That's it for this week. If you've enjoyed it, please tell your friends you've been listening to the Martin Lewis podcast. We tend to put out a new one every Wednesday or Thursday. And normally, I do it with Adrian. I hope it's not been too bad just having to listen to this old voice drone on and on and on, talking about things and never stopping and keeping going quickly. And I'm doing it again. I hope you've enjoyed it. Do subscribe to the podcast. We'll be back next week. And if you haven't enjoyed it, as I always say.

• 49:19Speaker 05

  Martin Lewis is the founder of MoneySavingExpert.com, but other consumer and price comparison websites are available. You can get in touch with Martin's podcast team by emailing [email protected]. The offers and rates mentioned in the podcast are correct at the time of recording. However, if you are listening on demand, it's worth double checking as the details can date.

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