Credit cards often come with nasty catches. Here's how to avoid them.
Credit cards: Love `em or hate `em, most of us can't live without them. But whether you think your plastic is fantastic -- or not -- here are my ten most-hated sneaky credit card tricks, with great tips on how to stop them catching you out.
1. Negative payment hierarchy
In a nutshell, this means the cheapest debts on your card -- usually 0% balance transfers -- are repaid first, leaving more expensive debts -- such as purchases or cash withdrawals -- on your card for longer to rack up even more interest. It's a dirty trick but virtually all cards do it. But not Nationwide Visa Classic or Gold Card, or Saga Platinum Visa card. These cards operate positive payment hierarchy by clearing the most costly debts first. Brilliant!
You can also get around this trick by choosing a card which offers the same 0% period on both balance transfers and purchases, so that neither is charged at a higher rate. Try the excellent Capital One Platinum Card which is interest-free until 1 September 2009. That's almost fifteen months without a single penny to pay in interest. The Halifax All in One Mastercard is pretty good too, charging 0% for the next ten months.
(Be warned though, you'll need an excellent credit rating to get the Capital One Platinum card.)
2. Higher APRs
According to data analyst, Moneyfacts, a dozen companies increased APRs on credit cards by 1 to 3 per cent this month. The average interest rate is now at more than 16 per cent. But the Barclaycard Simplicity Credit Card smashes this with a rock bottom rate of just 6.8 per cent.
If you don't want the hassle of moving your balance around every few months to chase new 0% deals, go for a lifetime balance transfer card instead. Try the MBNA Platinum Plus Rate for Life which charges an amazingly low rate of 4.9 per cent.
3. Credit card charges
Once upon a time credit card companies could charge whatever they liked for misdemeanours such as paying your bill late or exceeding your credit limit. These days, the penalty for each slip-up is capped at £12. This has been a long time coming and the charge is still too high, but the only way to get around it is to avoid breaking the rules.
4. Balance transfer fees
Transferring your balance to an interest-free card used to be perfect for getting to grips with your debt. It's still a great way of saving interest, but card issuers have thrown a spanner in the works by charging you for the privilege. Most cards take a fee of 2.5 to 3 per cent. But the Abbey Zero Credit Card is one of the very few cards left which doesn't.
5. Cash withdrawal rates & cash-handling fees
Using your credit card to withdraw cash costs an arm and a leg. A quick look at half a dozen popular credit cards shows interest rates on cash advances run from 21.66 per cent to 27.9 per cent. Worse still -- on top of these nasty rates -- you'll be charged a cash-handling fee on each transaction of around 2.5 to 3 per cent. Cash and credit cards don't mix -- ever.
6. Charges for using your card abroad
Most credit card issuers charge a foreign currency loading fee when you spend abroad. This typically adds 2.75 per cent onto the cost of your purchases. Thankfully a handful of cards -- including Nationwide Visa Classic or Gold Card as well as Post Office Classic or Platinum Mastercard -- kindly give this needless fee a miss. Think about that next time you go on holiday.
7. Credit limits 1#
I really hate the way some credit card companies tinker with your credit limit. Usually, you'll be given a measly one at first until the card issuer has decided you can handle credit. Once you've proved yourself, increases are doled out left, right and centre -- even if you don't want them.
8. Credit limits #2
But far worse are the companies which have started cutting back credit limits -- without warning. And that's even if you manage your credit perfectly well. As the full effects of the credit crunch began to unravel last year, Barclaycard reacted quickly by reducing the limit on over half a million customers' cards. Since then many more banks have followed suit and sadly, there's nothing you can do about it.
9. Monthly interest
I hate cards that charge monthly interest because it forces your interest bill up by treating all spending for the whole month as if it had been made on the first day. Credit cards which charge daily interest are better value since interest on spending is only charged as it builds up. Thankfully, many of the most popular cards do apply daily interest, but make sure you check the small print before you apply.
10. And finally, being turned down for a card because you don't have an ultra-excellent credit rating
At least some companies are more upfront about it than others. Capital one, for instance, will tell you whether you must have a high credit rating or not. With the Capital One Platinum and the Capital One Cashback with World Mastercard you will need a near perfect credit history, but the Capital One Classic Visa card is specifically for those of you who want to strengthen your rating.
So that's ten things I loathe about credit cards, but the list could go on. If you have a pet peeve too, why not add it to the comments below...
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