Core and Special Credit Cards February 2012

There are more credit card products on the market than ever before.
The choice can be confusing and understanding the terminology can require at least A-level Finance qualifications

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.’