How to battle those family budget cuts

Rising prices and unemployment are forcing mothers to make tough choices about the family budget, according to a new survey known as the Mumdex.

Three-quarters have lower disposable incomes than a year ago, around 42 per cent have had to accept a cut or freeze in the household budget and 23 per cent are borrowing to get by.

Perhaps the most telling detail to emerge from the research (by Asda) is that one mother in four is either returning items at the checkout or swapping value products for the brands their families prefer, hiding the truth from their children by refilling old packaging.

The news comes a week after another survey by Mumsnet that found a quarter of families are living on credit cards, five per cent have turned to payday loans and one in 100 have resorted to loan sharks to stay afloat.

It's a grim picture in what we're accustomed to regard as an affluent society but it does demonstrate that parents are using their imaginations to take control of their family budgets.

Understanding how credit works could help them to do even better – and save them valuable cash. The answers could be here.

Am I creditworthy?

Lenders look for people who can show that they're responsible borrowers. To check, they look at your credit report, which lists your credit accounts and repayment record. Even a minor error can affect your chances, so you should check to make sure it's accurate and up to date.

How do credit scores work?

To assess the risk that you won't repay what you owe, lenders take information from your credit report and application, and allocate each item a value. The total is your credit score. A higher score is more likely to net you the best deals – the difference between them and the most expensive offers can be thousands of percent in interest over a year.

What can I do to improve my score?

First, you can challenge any errors you may find in your credit report, such as accounts not having been updated, for example with a new address or your being named on the electoral roll. Then close any unused accounts, such as emergency credit cards or outdated catalogue or mobile phone accounts. If past payment problems were down to special circumstances, such as illness, you can also add a note of explanation.

What if I'm struggling to make my repayments?

Don't ignore them – a missed or delayed payment stays on your credit report for at least three years, warning lenders that you may not be reliable. Instead, contact the lender and see if you can negotiate a more affordable schedule of repayments or take a short repayment holiday. The key is to keep them informed.

How do I get the right deals?

Do your research first – use personal finance sites and price comparison sites to see what's out there. Only apply when you're sure you've found something that suits your circumstances. Each application leaves its mark on your credit report, so if you fire off lots of applications in a short period, other lenders may think you're desperate or suspect a fraud.

What if I am desperate?

If you've already got money troubles, borrowing more isn't likely to be a way out – you could end up in more debt. Try an organisation offering free, professional advice, for example Citizens Advice, National Debt Line or the Consumer Credit Counselling Service. They'll help you with how to budget money, negotiate with your creditors, and see if you qualify for further benefits.

Experian Credit Expert: A monthly fee of £14.99 applies after your free trial. You may cancel during your 30-day free trial without charge. New customers only. Free trial period starts on registration - further ID verification may be required to access full service which may take up to 5 days.

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