Moving your debt to a cheaper credit card
During the course of the last four or five years, credit card providers have progressively tightened up their acceptance criteria for customers.
"Quality lending" is very much their mantra and this has effectively developed a three-tier market for consumers looking for a credit card.
- If you have a good credit rating you can largely take your pick from the best deals available.
- If you are still deemed to be acceptable in terms of credit risk, but your credit rating is not top notch, then you will still be able to get a credit card. However you may find the interest rate charged is higher than the keenest rates advertised.
- As a credit status deteriorates an increasing number of consumers are unable to get credit cards.
Changes are afoot in the world of credit cards, courtesy of an agreement between the Department for Business Innovation & Skills (BIS) and the credit card companies.
The key changes are that:
- Your monthly repayment has to pay off the highest interest rate borrowing first. Previously most cards allocated repayments to the lowest rate borrowing first.
- You can reject a rate increase or a credit limit increase and you can reduce your credit limit. You will have 60 days to reject an interest rate increase, and, if you do so, you close the account but pay down the balance at the existing rate.
- There is a ban on increasing your interest rate or your credit limit if you are in financial difficulty.
- For new credit cards, the minimum repayment must at least cover interest, fees, charges and 1% of the debt.
Other changes include improved automated payment options, 30 days notice of interest or credit limit increases, a new minimum payments warning and, later this year, a new annual statement to aid easier comparison.
These changes are good news for consumers.
But there is a nagging concern that, along with a number of other changes that have affected providers' income, we may be about to enter an era where future credit card offerings become less attractive than they are now.
In short, the changes come at a cost to providers and they may seek to regain it elsewhere.
For now, there remain some very attractive offers.
For instance, you can get a 0% introductory rate on balance transfers for as long as 17 months or a 0% introductory rate on purchases for 13 months.
Because introductory offers are often the most attractive deals, there is still a significant incentive for those with good credit ratings to change their credit card on a regular basis.
The new "positive repayment hierarchy" has lessened that incentive somewhat.
For example, it paid to use your 0% balance transfer card only for that purpose and not use it for making any purchases.
But there are still reasons to have more than one card.
This is because the longest 0% introductory purchase deal will almost certainly be from a different card than that offering the longest 0% balance transfer.
If you can get a credit card then your circumstances will dictate the sort of credit card to select.
If you are confident that you can repay your entire balance in full every month then the interest rate charged is irrelevant and it makes sense to get a reward based credit card.
There are various types of rewards available and you can generally choose from one of four categories: air miles, cash back, points schemes or shopping rewards.
Some of these reward based cards have enhanced introductory offers.
You may find it worthwhile to review the rewards available on your existing card to see whether anything better is available elsewhere.
If you cannot repay your balance in full every month then the interest rate is of paramount importance.
If you have a balance to transfer from another card, then try and get the card offering the longest 0% introductory rate on balance transfers.
But do take account of the balance transfer fee that will be charged for the privilege of this facility.
The longest 0% balance transfer rate is for 17 months from BarclayCard's Platinum credit card with balance transfer. It charges a 2.9% fee.
Similarly, if you want to use a card for purchases then get the card with the longest 0% introductory purchase rate.
Tesco's ClubCard credit card offers the longest introductory 0% purchase rate for 13 months.
If you are going to use a credit card overseas then choose one that does not levy a foreign exchange fee on overseas purchases.
The vast majority of credit cards charge foreign exchange commission of between 2.75% and 2.99% but a number of cards do not levy such a fee.
They are Halifax Clarity, Metro Bank, Post Office Classic or Platinum, Saga Platinum, Sainsbury's Gold and Santander Zero.
Making a choice
For those with a very limited credit history the choice is considerably narrower and the so-called "credit repair" cards are the probably port of call.
Cards in this category include BarclayCard Initial credit card and Capital One Classic credit card.
It is also worth noting that at the premium end of the market a number of credit cards charge a fee in return for various incentives such as travel insurance, motor breakdown assistance and concierge services.
Some of these are very similar to the sort of incentives offered by a number of packaged current accounts.
Periodically it is worth checking your credit file with one of the credit reference agencies - Equifax, Experian or CallCredit.
You can see whether they contain any errors and to ensure that they are not financially linking you with anyone to whom you no longer have any connection.
There is a great deal of variation in the features, costs and benefits available from credit cards.
It makes sense to choose the card that best suits your requirements and circumstances.
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