Info About Credit Cards

Benefits

1. Useful if you want to buy something now, but your wages aren’t paid in until the end of the month
2. Invaluable in certain situations – emergencies or abroad
3. Can be extremely helpful in managing your cash flow if you are good at budgeting
4. Certain credit cards provide extra protection, for example travel insurance or ID fraud

Disadvantages

1. Expensive way to borrow money (unless balance is cleared monthly)
2. It's very easy to get into debt
3. High charges just for withdrawing cash from a credit card, in addition to an immediate interest charge
4. Some credit cards now charge consumers with positive balances ie: for not using the product
5. Annual fees have been known to be issued by some banks in an attempt by the lender to try and 'dispose' of their good customers (those that pay off their balance in full each month)
6. Only making the minimum repayments means you are extending your debt’s lifetime indefinitely. Don’t evenly spread you credit card repayments, aim to pay off the highest interest card first, and then filter down
7. Credit cards companies pass on information of bad customers to each other, so you may find it difficult to open another card with a different provider if you’ve had problems in the past
8. Opening more than three credit cards in a short space of time can affect your credit score and rating

 

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Credit Limit

When you first open a credit card the lender will set you a limit of how much they are willing to let you borrow from them. This is based on your credit application which is made up of two parts:

1. Your personal details – where you live, date of birth, marital status etc
2. The information held by credit reference agencies about you – current credit commitments, any bankruptcy information and details such as any court judgements

A decision is made based on these statistics which determines the amount of money you can borrow and at what interest rate. Some banks will offer a low credit limit until you show you have good money management skills.

 

Reasons you may have been turned down for a credit card

There are no set reasons as to why you have been refused credit but the following are among the most common:

• You’ve moved house and your name isn’t on the electoral role. Check that you are on the roll if you are at all unsure by logging on to 192.com
  
• You have been or are currently bankrupt
• Sometimes information directly linked to the credit agency can have an impact:

1. An application overload – how many different cards are you currently applying for?
2. You have never had credit before – there is nothing to base a credit decision on – the most common problem for students
3. You haven’t kept up repayments within an agreement

• Information held by the credit agency about you is incorrect (It is possible to see what is held about you and correct any mistakes which currently exist)

 
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Balance Transfer Cards

Balance transfer cards are credit cards with a relatively low interest rate. The idea is that you switch the debt from a credit card to a balance transfer card, so you are paying less interest.

There are two main types of balance transfer cards:

0% Balance Transfer Credit Cards

Life-Balance Cards

 

O% Balance Credit Cards

These cards charge no interest on the transferred balance to begin with but the rate of interest is high once this offer expires. To take full advantage of these cards switch to another card when the 0% offer expires.

Open one of these credit cards if you can pay of your debts in less than a year, or you are prepared to switch.

Top 0% Balance Cards:

Virgin Credit Card

Length of 0% BT offer: 16 months (for transfers made in the first 60 days)

Typical APR: 16.6%

Transfer fee: 2.98% (min. £3)

Annual fee: none

 

NatWest Platinum Credit Card

Length of 0% BT offer: 15 months (for transfers made in the first 3 months)

Typical APR: 16.9%

Transfer Fee:  2.9% (min £5)

Annual fee: none

 

RBS Platinum Credit Card

Length of 0% BT offer: 15months (for transfers made in the first 3 months)

Typical APR: 16.9%

Transfer Fee:  2.9% (min £5)

Annual fee: none

 

HSBC Credit Card

Length of 0% BT offer: 15months (for transfers made in the first 3 months)

Typical APR: 16.9%

Transfer Fee:  2.9% (min £5)

Annual fee: none

 

Life-Balance Cards

These are credit cards where the cheap rate of interest lasts until the debt (which has been transferred to the card) has cleared and paid in full. The interest rates are relatively low when comparing to ‘regular’ credit-cards.

Top Life-BalanceCards:

Barclaycard Platinum Credit Card with Purchase and Long Term Balance Transfer

Life of Balance Rate: 6.3%

Typical APR: 12.4%

Transfer Fee:2.5% (min. £2.50)

Annual Fee: none

 

Barclaycard Simplicity

Life of Balance Rate: 6.8%

Typical APR: 6.8%

Transfer Fee: 2.5% (min. £2.50)

Annual Fee: none

 

Balance Transfer Notes:

• Lenders won’t offer 0% balance transfers for any cards within their banking group. This means you would be unable to transfer a NatWest Credit Card balance to an RBS Credit Card.
• The longer your 0% balance deal last the better – 15 months seems to be longest possible, with three months at the other end of the spectrum.
• You need a perfect payment history to take out these cards. Banks lose money on 0% balance transfer deals. They will clamp down hard on customers who miss a minimum repayment.
• When choosing a 0% balance transfer card you must consider the transfer fees. Banks became increasingly aware of stoozing customers since the introduction of this form of card and have begun to set up balance transfer fees as a way of reducing this. An upfront fee of 3% is considerably more than a charge of 3% interest.
• Don’t spend on a 0% balance transfer card and make sure your read the terms and conditions properly for any other hidden fees and charges.
  

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0 Percent Purchase Cards

These allow you to make purchases and not get charged interest for a set period of time. Make sure you are aware of how long the interest free period lasts for.

Invest the money you would normally be paying into your credit card into an instant access savings account to ensure that when this free purchase period ends you can pay of the balance instantly maximizing the benefit. 'Making ‘free money’ from credit cards' has more information on how to use this to your advantage and gain interest on the bank’s money.

Never balance transfer to this card - the rate of interest can be beaten by choosing a balance transfer specific card .

 

The Top 0% Purchase Cards:

Tesco Clubcard Credit Card

Length of 0% offer: 12 Months

Typical APR: 16.9%

Annual Fee: none

 

First Direct Gold Card

Length of 0% offer: 12 Months

Typical APR: 16.9%

Annual Fee: none

 

M&S Credit Card

Length of 0% purchases offer: 10 months

Typical APR: 15.9%

Annual fee: none

 

Halifax All In One Credit Card

Length of 0% offer: 9 Months

Typical APR: 15.9%

Annual Fee: none

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Low Rate Purchase Cards

These cards have a low purchase rate for life (or a much longer time period), unlike 0% introductory rates which rise dramatically after the offer expires. It offers consistent low spending without having to constantly change credit cards.

The rate offered is usually variable, and could technically rise. However it is unlikely to rise dramatically.

Never use the card for both balance transfers and low purchase rates – choose one and stick to it.

 

The Top Low Rate Purchase Cards: 

 

Barclaycard Simplicity Credit Card

Typical APR: 6.8%

Min. Repayment: 2.25% (min. £5)

 

Halifax Easy Rate Credit Card

Typical APR: 8.9%

Min. Repayment: 1% (min. £5)

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Cash-Back Credit Cards

If you always pay the full balance on your credit card each month, there are certain credit cards which will reward you for this. For example, if you spend £5000 a year, you can earn £50 for simply paying off your account. You can earn free cash for simply doing what you normally do and the savings can add up. It is only beneficial and worth taking out if you:

• Pay off the account every month in full without fail. If you don’t the interest being charged on your purchase will cancel out the cash-back being earned and it would be better to find a lower interest credit-card.
• Never withdraw cash from a cash-back account, as you charged interest immediately.
• Don’t transfer your balance from existing cards, as the rate of interest is usually substantially higher than alternative cards.
• The lenders often attach really attractive balance transfer rates to cash-back cards; however your repayments will not follow a positive payment hierarchy.

 

Highest Paying Cash-Back Cards:

 

American Express Platinum Cashback Credit Card

Cashback: 5%

Length of cashback offer: 3 months (then 0.5% to 1.5%*)

Maximum Cashback per month: £100 for 5% intoductory offer; no limit on ordinary cashback percentage

Typical APR: 18.9%

* 0.5% up to £3500; 1% between £3501 and £10000; 1.5% over £10,000

 

Halifax Cachback Credit Card

Cashback: 1% on fuel and supermarket shopping (0.5% on all other purchases)

Maximum Cashback: £150 per year

Typical APR: 15.9%

Note: Cashback must be claimed back in multiples of £15

 

Barclaycard OnePulse Credit Card with Cashback

Cashback: 0.5% (5% on transport for London)

Length of cashback offer: Until 01/06/2010

Maximum Cashback per month: £15

Typical APR: 18.9%

 

Leeds Building Society Card

Cashback: 0.5%

Maximum Cashback per month: no limit

Typical APR: 17.9%

 

Bank of Ireland MoneyBack

Cashback: 0.5%

Maximum Cashback: Up to £750 per year

Typical APR: 17.9%

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Making 'Free' Money from Credit Cards

If you want to make 'free money' from your credit card it is possible thanks to the large number of credit cards on the market which charge 0% on new purchases.

Method 1

• Use a 0% purchases card to pay for everything you would be buying as normal with your debit card
• Only pay the minimum repayments each month on the credit card
• Every time you purchase on your credit card transfer the same amount from you current account to a savings account thus allowing all incoming money to accrue interest

Following this technique will earn you interest on your savings, allowing you to pay off the credit balance when the 0% purchase deal has ended. By setting the money aside each month it ensures that if anything was to go wrong you have the money available straight away.

You should only do this ‘trick’ if you don’t have credit card debt and have a good credit card rating. Similarly it is vital that you are organised and will remember to shut down your account when the 0% benefit has ended. Do not overspend on the card thinking of it as 'free money', as the benefits of using this technique will disappear even if you only incur an interest charge once. There are a lot of different cards offering the 0% purchase rate but the duration of the offer does differ:

 

Method 2

‘Stoozing’ is making money from your credit cards by taking the available 0% interest balance and placing it into a high earning savings account. The interest gained via this method is effectively ‘free money’. The majority of cards will charge you a fee to transfer a card balance into a current account.

For calculations in relation to the interest which could be earned, consult the online calculators on whatsthecost.com or stoozing.com.

The credit card company may require  a debit on the account, so check the terms and conditions before finalising your application.

 

Method 3

A final way in which to make money from your credit card is to pay your credit card on the last possible date prior to incurring interest, thus allowing you to keep the money in your current account for longer. This means that the money is earning you interest for longer by remaining in your account. Not all credit cards have the same interest free credit period – some cards can be as little as 31 days, whereas some are as long as 56.

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