Is This Credit Card All It's Cracked Up To Be?

Egg has a couple of unusual credit cards.

This article was first sent to Fools as part of our 'Summer Lolly' email series.

The truth is, for many of us credit cards have become a necessary evil, allowing us to take advantage of 0% offers to make what might otherwise be expensive debts relatively cheap, and reward schemes which give us an added bonus every time we spend.

But wouldn't you like a credit card that does all this plus more?

Citigroup owned Egg hatched the idea of the 0% credit card, and caused a stir when it launched the first ever one on Christmas Day 2000. It subsequently came under fire after cancelling 161,000 credit cards earlier this year, leaving many customers in the dark over why their cards were withdrawn.

For those concerned whether this could all happen again, I asked Egg whether it had tightened its lending criteria. Egg told me that it had made these changes as part of a one-off review when the company was taken over by Citigroup. Its lending criteria remain unchanged, and Egg says you shouldn't be deterred from applying.

A good Egg to put in your basket?

In some ways, Egg's credit cards may not be as juicy as some of the best deals at the moment, but they do have some attractive features that mark them out from the competition.

Take, for example Egg's Visa credit card, which currently offers 0% on balance transfers until September 2009 (a 3% handling fee applies) - giving you a mammoth 14 months interest free credit.

There are a few other cards that offer 0% deals of that length or longer, but Egg also has an anniversary 0% offer.  In July 2010 and 2011 you could make fresh balance transfers to the card, giving you 0% on balance transfers for an additional five months each time. This is handy if you're looking to take advantage of a new offer, but don't want to risk impairing your credit record through making several applications.

However, a word of warning. If you're looking to take advantage of the anniversary offer and still have a balance on the card when transferring a new one, any subsequent money paid towards your credit card will be used to pay the cheapest debts off first (i.e; the promotional balance transfer), leaving your old debt to rack up interest at 16.9% - a trick called negative payment hierarchy.

There are two ways you can combat this. The most Foolish one is to set yourself a tough (but realistic) target to pay off your credit card by the time the initial offer ends next September. That way, you won't need to worry about any balance transfers. You can find some first class hints on how to do this on our Money Saving Tips and Living Below Your Means discussion boards.

The second, slightly more complicated option is to transfer any debts out of your Egg card and then back in again to qualify for the 0% deal. Bear in mind that if you do this you may end up paying two sets of balance transfer fees, one to the credit card provider you transfer to and another 2.5% to Egg when transferring it back.

If all this transferring seems more hassle (and expense) than it's worth, you may want to consider a lifetime balance transfer card instead, which Laura Starkey discusses in Try This Brilliant Balance Transfer!

A credit card with a difference

If you're lucky enough not to be saddled with debt, then Egg's innovative `Egg Money' card could prove a good alternative.

Egg Money works like a credit card combined with a savings account. Although there are no balance transfer offers with the card, it does offer a low 7.9% APR on debit balances, much lower than the 16.9% APR on Egg's Visa. In addition, unlike a regular credit card, any credit balances on your account will earn you 4% AER.

This rate is significantly less than the highest paying savings accounts, but could be a handy feature if, say you were going on holiday and you wanted the extra protection of a credit card while not having to worry about being in debt to it.

In addition, not only does Egg Money pay a great 1% cashback on all purchases you make, but you also have the chance to earn up to 25% instant cashback at a wide range of retailers with both the Egg Money and Egg Visa cards.

What's more, unlike other cashback cards which generally make you wait until the anniversary of account opening before giving you any rewards, cashback earned from these retailers appears on your statement at the same time as your transaction. All other cashback is paid annually in March.

At the moment, instant cashback offers include 10% cashback at Lastminute.com and 25% back on a case of wine at Virgin Wines. With several other retailers on board, this could be another way of getting that little extra back on your shopping bill.

So, Egg may not be the market leader in several respects, and shopping around could get you a better deal to suit your needs. However, Egg's credit cards are somewhat different, and may just prove tempting enough to win a place in your wallet.