Credit-card companies are using these five tricks to clamp down on 0% rate tarts. We show you how to fight back!
Although this month marks the start of my fourth year as a personal finance writer (no, really, who would have believed it?), not a week goes by without me writing about some aspect of credit cards. I do this not because I'm some kind of cheerleader for the credit-card industry, but simply because our addiction to plastic runs very deep.Indeed, two out of three adults have at least one credit card, and there are roughly 75 million cards in issue in the UK. What's more, our spending on plastic (debit and credit cards) now exceeds our cash spending, which helps to explain why our credit-card debt now tops £56 billion. Hence, credit cards rank among the most widely used financial products in the UK, which is why I comment on them so often!One phrase in common usage these days is rate tart, coined by the financial services industry to describe a consumer who constantly seeks out the best deals. For example, millions of us have latched onto the fact that it's relatively simple to avoid paying interest on our non-mortgage debts by transferring them from one introductory 0% deal to another. (You can learn more about this game in Your Ultimate Guide To Credit Cards.)Alas, these 0% card tarts cost card issuers money -- up to £600 million a year. Thus, card issuers have introduced various measures to repel the rate tarts, including these five tricks:1. Balance-transfer feesIn the early days of the 0% game from 2000 to mid-2004, no card issuer charged fees on 0% balance transfers (or not to new cardholders, at least). However, market leader Barclaycard broke ranks in August 2004, introducing a 2% fee on all balance transfers, capped at £35. By the start of 2005, a dozen cards charged transfer fees; by December 2005, close to half of all 0% cards (41 out of 91, or 45%) charged fees.2. Uncapped transfer feesAnother weapon in the card war is the introduction of uncapped balance-transfer fees. Until recently, most card issuers had a cap on the maximum transfer fee charged. For example, a typical fee would be 2% of the amount transferred, with a minimum charge of £2 and a maximum of £50. Some card firms, including Lloyds TSB, have now removed this ceiling, making larger balance transfers less attractive. For example, the Sky Card offers 0% on transfers until 1 January 2007, but charges an uncapped fee of 2.5%. Therefore, a £5,000 transfer would incur a charge of a whopping £125. Ouch!3. Annual feesAnnual fees had almost died out before making something of a comeback in late 2005. According to my analysis of 319 credit cards, only fifteen cards (under a twentieth of the total) charge annual fees to new customers. These range from £10 a year (six cards issued by Lloyds TSB) to £275 for this luxury card.However, some card issuers are boosting their profits by reintroducing annual fees of up to £25 for existing customers. My advice if this happens to you is to vote with your feet by switching cards straight away!4. Low credit limitsA common complaint on our Credit Cards & Loans discussion board concerns the low credit limits given to persistent 0% card tarts. For example, you apply for a new 0% card to transfer a debt of, say, £2,500 before your current 0% deal runs out, only to find that your new card issuer gives you an insufficiently high credit limit, say, £1,000. The best thing to do is to contact the new firm and ask for a higher credit limit. Some lenders will match the highest credit limit among your existing deck of cards, so it's well worth trying to get your limit bumped up.5. Data sharing and rejecting tarty applicantsConcerns about overspending and soaring levels of debt have let to some lenders sharing more data on borrowing and indebtedness. For example, in August 2005, HSBC began sharing data on its borrowers with the three main credit reference agencies, and other major lenders have followed suit.Furthermore, lenders are curbing card tarting by rejecting more applications. Barclaycard now rejects around half of all applications, which comes to about 13,500 rejections each month. Also, Tesco Personal Finance recently admitted that it is coming up with ways to keep more tarts at bay. Tightening up their lending criteria is the lenders' ultimate weapon in the battle against card tarts, because they don't have to explain why they rejected your application. However, you can get some clues on your creditworthiness by checking your credit rating with a free thirty-day trial from Fool Partner CreditExpert.Finally, don't feel bad if your application for credit gets rejected, because it may be that you simply don't fit that lender's ideal customer profile, or it doesn't expect to make money from you. I get turned down for credit more often than not. Perhaps the banks are catching onto the fact that I'm a mega-tart!More: Check out this delicious deck of 0% deals! | Check your history in our Credit Report centre.Cliff owns shares in Lloyds TSB.