Core Credit Card Types

• Purchase card is the plain vanilla variety that has been around for decades typified by the original pre Visa Barclaycard. It will have some limited extra features and rights created by credit and sale of goods laws. It is the staple and our card type of choice.
• Cashback cards do what they say on the tin. They offer a lump sum cash reward based on the amount you buy using the card. Rates vary and the largest percentage (2.5%) is currently paid on petrol. Supermarket shopping usually pays well on most cashback cards. There may be maximum reward, annual fees or conditions attached to each card. These cards may be useful if you repay your card in full every month.
• Low standard rate cards have interest rates (APR’s) starting at about 7% compared to normal charges from 17% upwards. They are useful for those looking for credit rather than cheap shopping.
• Rewards cards have a loyalty reward in the form of points. Tesco and Nectar points are available on some cards and other large retailers use this type of card for promotion of their brand. Airline cards are offered by many of the UK based airlines including Virgin, Ryanair, and BA. Their points rewards may go to new flights like the old airmiles (now Avios).

Special Circumstance Credit Cards

• Bad credit are premium interest rate credit cards to accommodate the higher risk by the lender. APR at 35% interest are the norm. Credit builder are similar marketed as a way for first time card holders to build lender confidence (while paying for the privileged).
• Balance transfers are available on a variety of cards. You may want a good deal on your spending and then the ability to transfer the credit balance to a cheaper provider. Zero interest may be available but these offers may be for an introductory period and have conditions attached.
• Overseas spending can incur commission charges. Most credit cards impose extra fees and charges for foreign currency and overseas transactions. There are some including the Post Office and Nationwide who currently have zero charges.
• Cards from your bank may bundle up insurance and other products under a ‘Gold’ or ‘Platinum’ banner but many of these have an annual fee.
• Retailer Loyalty cards can be just part of the big business that is credit cards. ‘Have you got one of our cards? Sign up now for x% off your purchases.’ These cards are managed by other providers like MBNA who share the cost/benefit with the retailer.
• Zero rate cards 0% interest for an introductory period may be tempting but read the rules. New purchases may not be at zero, repayments may pay off the zero rate first leaving higher charges on the card. Ask yourself why would someone give you free money.

Issuer or Processor

• MasterCard, Visa and American Express provide payment processing between card issuers and merchants bank.
• Processors are the conduit for the retailer to get paid. You pay the credit card issuer.
• Visa and MasterCard make their money is by charging the retailer for using their payment method. These charges can amount to over 5% of the transaction value.
• It is this percentage that is diced and sliced to innovatively create the marketing products described in the card offers above.
• In the UK and most of Europe most retailers now accept payment with both Visa and MasterCard.
• American Express cards are less common and less popular with retailers in the UK than they are in the USA. ‘Too often that won’t do nicely.’

What is the Cash Passport?

• Available since 11 October 2011 the cash passport costs £6 to obtain through the Ryanair website. You then have to put your cash onto the card before you can use it!
• Ryanair will give a £6 flight voucher to users to off set the £6 it costs you (so that’s alright then)!
• As a Cardholder, you are eligible for a number of fantastic offers, currently you can earn free digital photo prints and discounts off photo gifts. Terms apply. (wow great gift!)

• Of the credit card, Which? the consumer champion says the £2 fee when withdrawing money is costly and one of the highest around.
• Ryan Air say ‘Earn up to 5 Bonus Flights** The only UK Credit Card that gives you exclusive flight offers with Ryanair. Terms apply.’

The Big Print

• */** Waivers may be withdrawn or amended at Ryanair’s discretion. You will be notified of any changes via email.
• Bonus flights are subject to availability. Terms and Conditions apply.
• Why put your cash upfront on a Ryan Air prepaid card?
• With so many get outs, *, terms to apply, and waivers in Ryan Air’s favour no doubt is it worth saving the £6 per person per trip?
• Vote with your feet or the wings of other airlines.

This is the biggest form of profit. With credit card rates nearing 18%, that makes a very profitable rate of return. It is much higher than a standard loan. True, some people may always pay off their debt; but enough people maintain a debt balance on their credit card which can last for several years.

2. Late Fees

Recently, these have come in for criticism from the OFT. But, fees for late payment and missed payment can be costly for the consumer and profitable for the credit card company.

3. Transaction Payments.

These can account for 2.5% of a sale. Ultimately these lead to higher retail prices. Sometimes for rail and plane tickets, credit cards will actually attract a higher price than using a debit card. (A debit card usually has a fixed fee, which is why you can get cash back on a debit card, but, not on a credit card)

4. Credit Card Insurance Schemes

Sometimes credit cards are successful in selling insurance for protecting your credit card repayments. It is best to get one scheme which covers all cards, rather than taking out separate schemes for each card. Just make sure you add any new card onto your existing deal.

5. Minimum Payments.

This is related to the first point about interest on debt. Credit card companies charge a minimum payment which may be 2% of your balance or just £5. However, if you keep paying just the minimum payment you may find the total debt just continues to increase. The interest payment on a £3,000 balance could be over £40 a month. If you are paying only £5, then you will see your total debt increase, even though you may feel you are actually paying it off.

• 7 Tips for using Credit Cards
  
• Transferring credit card balances at 0%

A review by the Office of Fair Trading found that charges on credit cards were deemed inappropriate for the inconvenience caused to the credit card company.

In April, the OFT stated that credit card default charges had been generally set at a significantly higher level than was considered fair and set a £12 threshold for OFT intervention unless there were exceptional business factors. Many card issuers have stated that they do not agree with the OFT’s view of the law and that they believe that their default charges were fair but, in view of the reduction in charges across the market, the OFT is satisfied that no further intervention is warranted in this area at this time and that this change has brought about substantial benefits for consumers.

OFT press release 

If you have been charged over £15 it is worth writing to your credit card company asking for a refund. The sooner you can do it the better, but, refunds may be given back for anything up to 6 years ago.

In the first instance, you should write to your credit card company. Stating when the charge was made and why you should be given a refund. If this doesn’t lead to any refund, you can make a complaint to the financial ombudsman service and if necessary consider taking it to the small claims court.

• Letter to claim money back from a bank 
• How To Write a letter of complaint to your bank 

Egg wrote a letter saying that people’s credit card would stop working within 35 days. Yet, many egg credit card users say that they have never missed a payment.

Labour MP and former consumer affairs minister Nigel Griffiths made a complaint to the Financial Services Authority FSA. They in turn have forwarded the complaint on to the OFT. They are now investigating the case.

Critics of Egg say that the main motivation for cancelling cards is that Egg want to get rid of unprofitable credit card users, users who never pay any interest on the debt. Egg dispute this; however, it is a strange decision given that if credit card users do have a bad credit history and miss payments or pay interest they are probably the most profitable consumers. The argument Egg make is that the subprime crisis makes it much more difficult to deal with debt labelled as ‘bad credit’ or ‘subprime’

Egg has recently been bought by American bank Citigroup, I think they seriously need to have some common sense marketing advice. This decision will not help them in any way. But, it will understandably annoy egg credit card users and create bad publicity for the company.

I have had an Egg credit card for several years. I have never bought anything on it. I just use it for transferring credit card debt at 0% for 6 months. They didn’t write to me to say that they were going to revoke it.

What Should Egg Credit Card Users do?

If you have you egg credit card cancelled I would be interested to hear your views and in particular whether you have had a history of missing payments. It will be interesting to see what the OFT decide. There is a possibility of compensation for unfair treatment, we will have to await the verdict.

• Top 7 Tips about Credit Cards
• Credit Card Penalty Charges
  
• OFT Takes up Egg Complaints at Guardian
• How To Make an effective complaint

Goldfish Credit Card Apply Here

Don’t wait until you Need To Borrow Money

If you suddenly need to borrow £3,000 it is easier, if you have already a balance on a credit card of £3,000 at 0%. Make big purchases on a credit card and transfer them to the credit card which is offering 0% for balance transfers.

Don’t Be Greedy

If you start to apply for many credit cards, you reduce your chance of getting approved. Don’t be greedy and try to manage several cards at 0% at once, just borrow what you need to improve cash flow.

Make Sure You Never Miss a Payment

If you are taking advantage of a 0% credit card balance transfers it is even more vital than ever to never miss a payment. Make sure you always pay off the minimum balance. I highly advise setting up a direct debit to automatically pay the minimum balance. This reduces the risk of forgetting or a cheque getting lost in the post (It also saves alot of time.) If you miss a payment the credit card company will invariably revert your balance to the standard rate and your credit rating will be damaged. (If this does happen try to fight it)

Make sure you pay off any purchases.

Note the 0% will be usually just for balance transfers. If you purchase on this credit card, you will have to pay off the purchase balance, otherwise these will get charged at usual rates.

Don’t cancel when the 6 month period ends.

It doesn’t look good to cancel a credit card as soon as the 6 month period ends. Sometimes after a few years, credit card companies offer existing companies another chance to transfer balances at 0%. This happened with my Egg credit card. Therefore, I was able to have 2 periods borrowing at 0% without having to apply for a new card.

Check Balance Transfer Rates

Most credit card companies now charge a balance transfer fee of around 2%. If this is the case try to choose a card which offers the longest period of interest free charges. 2% balance fee for 12 months, is effectively an interest rate of 2% – a pretty good deal for borrowing. 2% for 6months is effectively an interest rate of 4%.

See also: Mistakes of Using Credit Cards 

When you make a purchase on a credit card, it takes upto 6 weeks before you have to pay the credit card company. This is an easy way of gaining an interest free period. Useful, if you are expecting income soon.

2. There is no need to pay any Interest on Credit Cards.

People often focus on how expensive credit cards can be. However, if you manage your credit card carefully there is no need to pay any interest at all. Every financial product can be expensive. – A bank account will charge a lot if you go overdrawn. Credit card company’s will charge high interest. But, as long as you don’t spend beyond your means there is no reason to have to pay any of these interest payments.

3. Insurance for Faulty Goods

Major Credit card companies usually offer insurance for faulty goods. i.e. if there is a problem with a purchase the credit card company will not charge you and sort out the problem with the company directly. This can save a lot of hassle and give peace of mind. This is something you wouldn’t get if you bought it directly

4. Card Insurance

Many worry about the potential of credit card fraud. However, if you take out modest insurance you can easily gain insurance against fraud and misuse of your card. There is no necessity to worry about inappropriate use as long as you take out the very cheap insurance.

5. Bonus Points

Nearly all credit card companies offer some loyalty schemes. Over the course of a year, these cash back offers can be significant, giving you 1-2% cashback.

6. Saves Carrying cash

Much easier than carrying around cash. Easier to make purchases on internet.

Related:

• Mistakes of using credit cards

1. Withdrawing Cash on a credit card

If you withdraw cash on a credit card, you will pay the highest interest rate of upto 21%. Avoid at all costs withdrawing cash on a credit card. For example, avoid buying foreign currency on a credit card because this is the same as withdrawing money. Plan ahead, if you need to borrow cash, find any alternative to using a credit card to borrow.

2. Late penalties

If you forget or make a late penalty for your credit card, you will gain a negative credit on your credit card. This makes it difficult to get future credit. You will also gain a penalty of between £20 and £50. Furthermore, if you have any special introductory rate such as 0% balance transfers this will be lost, and the balance will be charged at the S.V.R. This is a real disaster; avoid this eventuality by setting up a direct debit.

3. Not Challenging your credit company.

Suppose you miss a payment by one day and all the above happen. It is an even bigger mistake not to do anything about. If you can write a nice letter explaining why the payment was a day late, they may agree to ‘forget’ the late payment. Always give it a go, you have nothing to lose and a lot to gain.

4. Ballooning debt.

The real problem of credit cards is that it is tempting to build up debt without realising how difficult it is going to be to pay it back. The problem escalates the more debt we have. This is because we can find that the monthly repayments take all our disposable income, therefore, we have nothing left to make additional payments. If debt and interest payments start to become too difficult to pay, the sooner you act the easier it is. You may need to make radical changes to start paying off  interest plus capital. Even if this requires a second job or significant changes to our spending.

5. Paying debt at 17% when it could be transferred.

If you have debt at the highest rate, you need to look very carefully whether it can be transferred to a lower interest rate. It may be possible to transfer it to a new credit card and get upto 12 months interest free. These provide great opportunities to make payments to reducing debt, rather than just the interest payments.

Related:

• Effective ways to reduce debt 

The rise in use of credit cards is due to the increased cost of living in the UK. Rents and house prices have been rising causing homeowners, especially young homeowners to spend upto 50% of disposable income on rent and mortgage.

The Use of Credit Cards to pay mortgage is cause for concern.

The majority of credit card users pay off their balance at the end of the month. Thus paying on credit card gives you extra time to meet the payment. However, for those who struggle to pay their balance in full, they are likely to face interest rates of upto 18%. In effect they are borrowing at 18% to meet mortgage debt at 6%

A report by charity Shelter said that 1 million Britons have used credit cards to pay rent or mortgages in the past 12 months.

A big cause for concern is that a significant % of people are using credit cards to withdraw cash. Withdrawing cash on a credit card can gain an interest rate of upto 25%, creating a real problem of future debt payments.

With higher interest rates continuing to bite, this could cause serious problems in the future.

Should I pay my Mortgage on a credit card?

• It is important to meet your mortgage payments and avoid creating a bad credit report. However, you should avoid paying for it by withdrawing cash. Instead look for a low interest loan or overdraft.
• If you suffer from a long term lack of affordability it is best to consider a different housing option. Borrowing on a credit card is not a long term solution to a mortgage.
• If you can pay using a credit card and then always pay back the debt this is the best solution, because you will not be charged by your credit card company. However, make sure your mortgage company doesn’t charge for the use of credit cards. Mortgage companies are unlikely to be happy at the prospect of losing a % to credit card companies.

• 7 tips for using credit cards
• How to avoid defaulting on mortgage
• 1 million pay rent or mortgage on credit card
• Paying your mortgage with credit card 

Credit cards can be very useful if you are able to pay off the balance. However, when you start paying interest at 17%, the advantages are easily outweighed by the very high interest payments. Therefore, always seek to pay off the balance and avoid these rates of interest. These are the best strategy’s for avoiding paying credit card debt interest.

• Avoid overspending. – Don’t get carried away, just because you are paying with plastic rather than cash.
• Transfer the debt to a lower interest paying loan like mortgage or personal loan.
• Don’t see credit cards as a way of borrowing. See it as a convenient way of borrowing.

2. Pay Electronically at latest date.

Many credit card companies give you up to 6 weeks to pay for your balances. When your statement arrives often you do not need to pay for 3 weeks. It is tempting to pay the account straight away. However, if you are short on cash, you can leave the payment until nearer the payment date. If you do pay close to the deadline make sure you:

• pay electronically for guaranteed payment (don’t rely on the post)
• Make sure you are not going to forget.

3. How to Deal with Missed Payment

If you don’t have a direct debit for minimum payment and you miss a payment by accident you should contact your credit card company as soon as possible. If you pay it as soon as you realise it may not incur a penalty for your credit rating. However, if is more than a few weeks late then it will count as a negative rating. In this case, the best thing to do is to try and challenge the negative rating. You could try write to the bank and apologise, saying it got lost in the post. If it is your first time they may agree to write off the negative credit rating

4. Use one Card for Collecting Points

Choose one credit card to put the majority of your spending on. It is best to choose a card that has an attractive points / reward system. This credit card you should always pay off at the end of the month.

5. Use 6 Month Interest Free offers

Many credit card companies seek to entice new customers through offering introductory periods of 0% interest. This can be very beneficial for consumers of credit cards. Personally I like to choose cards with 12 months interest free. They may charge a 2% balance transfer fee. But, this equates to only a 2% interest rate – you can probably get a better rate on savings. These 6 month interest free periods are ideal for dealing with periods of temporary cash shortfalls. It is a much preferable alternative than paying interest at 17%, the standard rate for some cards

6. Don’t overdo 6 month interest free cards.

It is tempting to take out as many interest free credit cards and invest the money elsewhere. However, I would definitely advise against this. Credit card companies are increasingly taking a dim view of people who do this. You may find it difficult to get cards in the future. The small gain of making 2% interest profit is not worth the negative standing with credit card companies.

7. Set Up Direct Debit to Pay Minimum monthly payment.

This means you will never miss the payment and is the easiest way to make sure you don’t damage your credit rating. Of course, you should try to pay the whole amount off. But, the main benefit of doing this is that you don’t need to worry about a missed payment which is very damaging for your long term benefit.

Related:

• Top 10 Tips for Reducing and Eliminating Debt
  
• Tips for Switching Credit Cards