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The best credit card for you
By Kirstie Redford
Prioritise which features are most important to you. Will you pay your balance off each month or gradually? Do you have debts that you want to transfer? Do you plan to use your card overseas? Can you be bothered switching cards regularly, or would you prefer a card that provides long-term value?
According to industry figures, 60% of cardholders use their credit card to make purchases and then repay the money in their first bill - the interest rate does not affect them.
Cards can offer cashback of around 1%. However, some stagger the rate after you have made a set amount of purchases, increasing it to 3% or decreasing it to 0.5%. Morgan Stanley offers a triple cashback offer of 3% on the first £2,000 of purchases, followed by 1.5% on £2,000 and above.
If you can't clear your bill every month, interest rates are more important. Here, the best deals offer introductory rates at 0% usually for periods of up to one year. You also need to find out how many interest-free days the card allows.
GE Money's Transformation MasterCard offers 0% on purchases for 12 months and 56 interest-free days. Marks & Spencer's Money & More MasterCard comes a close second, with 55 interest-free days. GE's card has the added bonus of 0% for 12 months on balance transfers, compared to Marks & Spencer's 3.9% for the life of the balance. So if you have an outstanding balance but also want to make purchases and don't mind switching next year, this comes out top.
Transfer deals
If you do not want to make any new purchases on your card, but you have existing debts, then you need to focus on the best transfer deals. The HSBC Bank MasterCard offers 0% until 2 April 2008 and currently has a low transfer fee at 2%, with a minimum of £5. Second on the list is Virgin Money's MasterCard, which is currently offering 13 months with a 2.5% charge.
Although 0% deals on balance transfers are a great for clearing debts, find out what the payment hierarchy is if you plan to make new purchases. According to Kenley, many cards offering 0% on balance transfers have a negative payment hierarchy. This means that the balance with the cheapest interest rate is paid off first. The way around this is to have two credit cards - one for balance transfers and one for new purchases only. This helps you get the best rate for both.
If you do opt for a 0% rate on new purchases or on balance transfers, it will be for a fixed period. This means that you have to be prepared to switch cards when the introductory rate runs out.
Not everyone will be eligible for 0% deals if their credit history is not up to scratch. If you are fed up of chasing 0% deals because of a poor credit history, opt for a long-term low standard rate. The best long-term deals tend to offer standard rates of between 9% to 10%. However there are some that offer rates below this. Halifax's flat-rate card has the most competitive long-term rate at 5.9% - but it does not offer an interest-free period. Barclaycard's Simplicity Credit Card is 6.80% and offers a 56-day interest-free period. Intelligence Finance's flat-rate Credit Card offers an impressive 59 days interest-free, with a slightly higher rate of 8.9%.
Foreign use
Credit cards are accepted worldwide and can also be used to withdraw cash in foreign countries. It is important to understand the extra fees you may have to pay. Be aware that the card issuer adds a foreign usage loading, which can be as high as 2.75%. That means that if you spend £1,000 abroad, you can be charged £27.50.
There are currently only two providers that provide a 0% loading - the Post Office with its Platinum card and Nationwide with its Classic Visa.
The Post Office's card also offers a 9% balance transfer rate for eight months and 9% on purchases for three months - but watch out for its negative payment hierarchy. Nationwide's Classic Visa also offers 0% on purchases for nine months, but charges 4.9% on balance transfers for 12 months, after which it reverts to a less comfortable 17.9%. However, this card has a positive payment hierarchy, making it easier to pay off expensive debts first.
While abroad you also need to be aware of charges for using your card to withdraw local currency. Cash withdrawal fees can top 3%, but are 2% on both Nationwide and the Post Office's cards, with a minimum charge of £2. It is also worth noting that, as with all ATM withdrawals made with credit cards, interest is paid from the moment you take out the cash and will not qualify for interest-free days. Interest will also be charged at a higher rate. The cash advance rate charged by the Post Office stands at 15.88%, with Nationwide charging 21.9%. So if all of these fees are taken into account, if you withdrew £100 in Europe and paid the full amount off the following month, it would cost you £103.32 with the Post Office's card and £103.67 with Nationwide's card. As neither provider charges a foreign usage loading, spending £100 abroad and paying it off the following month would cost you just that - £100.
Another potential charge to be aware of is the "dynamic currency conversion fee". This can be charged when retailers offer to convert the purchase amount into sterling. However, these fees can be high as they are at the complete discretion of the retailer.
Monthly fees
Staying ahead of credit card charges can be a complex business. Unfortunately it's set to get even harder.
The Office of Fair Trading (OFT) recently ruled that credit card providers must reduce their default fees to £12 or below. Although this is good news if you forget to pay your minimum monthly payment, the general feeling in the market is that providers are looking to claw back this lost revenue by applying charges elsewhere. Just three months after the OFT's decision, it was reported that 19 card providers had increased their rates by as much as 5% to 6%.
Some providers are also introducing card fees. According to industry figures, Lloyds TSB's Premier Annex card now carries a £4.95 monthly fee; Co-operative Bank has announced its Platinum Tracker card; and Northern Rock Base Rate Visa will also both carry a £2 monthly charge.
So next time you receive a tempting credit card offer read the small print and make sure that your card fits your needs rather than those of your provider.
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