Credit cards are a great financial instrument. In place of having to take around so much cash or write cheques for often small sums, a card swipe is all that is required.
With the major benefits that the card issuer is providing credit for often weeks at a time, a helpful detailed statement will be sent (unlike most bank records) and that many give ‘rewards’, credit cards are a definite plus.
The idea of using a card for purchases was actually described as long ago as 1887 by Edward Bellamy in his novel Looking Backward. He used the term ‘credit card’ 11 times.
Today’s credit plastic developed from merchant card schemes, which were first introduced in the US in the 1920s to sell fuel. By 1938 companies started to accept each others’ cards.
The first general purpose charge card was launched by Diners Club in 1950 and by American Express in 1958. Barclaycard was the first credit card in the UK in 1966 and enjoyed a monopoly until Access in 1972.
Interest rates vary between cash withdrawals and purchases. It is certainly not advisable to use a credit card to obtain cash as rates can be as high as 49.94 per cent (Vanquis Bank Visa), 34.94 per cent (Capital One Classic Visa) and 29.9 per cent (Barclaycard Initial Visa, Santander 123).
Purchases can still attract high rates, such as 39.9 (Vanquis Bank Visa), 34.9 (Capital One Classic Visa), 34.5 (Amex Guest), 31.7 (Coutts Gold) and 29.9 (Barclaycard Initial), all on a per cent APR basis.
The best current deals are 6.9 per cent (Sainsbury’s MasterCard) and 7.9 per cent (Barclaycard Visa), both APR introductory and without fee.
If transferring a balance, 23 months is available with Barclaycard (minimum £20,000 income) and HSBC (provided a current account is held), according to website moneysupermarket.com.
However, take care before transferring as some issuers now impose a fee to leave them if transferring a debit balance. The average charge is now almost three per cent but it rises to 3.5 per cent with Halifax, part of the Lloyds Banking Group, and five per cent with some MBNA cards.
With credit cards increasingly popular as a way to pay for goods and services abroad, watch the foreign use loading which most impose. This can typically amount to 2.99 per cent. If £2,500 is spent on such a card, a fee of £74.75 is levied.
However, several cards come with no such charge worldwide, according to research by Moneyfacts: Halifax (Clarity and Rewards Clarity), Metro Bank, Nationwide (Select Visa), Post Office, Saga, Sainsbury’s (Gold).
One of the real benefits of using a credit card is the protection if the goods are either faulty or not delivered, such as for an online purchase. The card provider gives the guarantee under the Consumer Credit Act, section 75, for transactions over £100. Watch though where the business accepting payment is acting as an ‘agent’ for the supplier as there is then no protection.
Cashbacks which give a refund based on the level of expenditure are offered by a few providers. Capital One’s Aspire returns five per cent up to £100 for the first three months and then at a sliding scale of 0.5 per cent (to £5,999pa), one per cent (to £9,999pa) and then at 1.25 per cent.
Spanish-owned Santander rebates three per cent on fuel (capped at £300 monthly expenditure), two per cent on department store purchases and one per cent on supermarket buys with its 123 card, but it costs £24 annually.
Other cashback deals are offered by American Express Platinum (£25pa fee), Asda, Bank of Ireland Moneyback, Creation, Halifax Rewards Clarity, Leeds Building Society, Nationwide Select, Sainsbury’s Cashback and Smile Classic.
One way in which you can help others is by using a charity credit card. The issuer makes a donation of around £15 when the first purchase is made and usually at 0.25 per cent thereafter. Earlier this year Halifax withdrew all such cards but almost 40 remain through other providers.
A good range of charity or ‘donation’ credit cards are offered through both the Co-op (such as RSPB, Save the Children and Shelter) and MBNA (Breakthrough Breast Cancer, British Heart Foundation, Dogs Trust). Such is the competition between issuers, there is no need to pay a fee unless the ‘rewards’ compensate and are not available elsewhere.
Savings on travel and/or hotels are offered by Co-op, HSBC, M&S, Royal Bank of Scotland, Saga, Smile, Tesco and Virgin Money with no fee for their credit cards. A complimentary travel service is provided by Amex Nectar, Barclaycard, NatWest, Royal Bank of Scotland and Vanquis.
One of the largest ranges of benefits is provided with Sainsbury’s Gold for an annual £60: worldwide multi-trip annual travel insurance, lost or delayed luggage cover, flight delay or cancellation insurance and personal liability cover.
Insurance for flight delays or cancellation and lost or delayed luggage is covered by Amex Preferred Guest card for which there is an annual £75 fee.
Consider also the length of interest-free credit and how interest is charged. The free time varies between 45 days (Capital One Aspire) and 60 days (Metro Bank). However, a few offer no credit period (Lloyds TSB Advance). Interest is calculated in different ways. Some start charging from the date the item reaches the account if it has not been cleared in full in each month (Bank of Ireland, Saga) and some on the same basis but with cash and debt transfers charged on a daily basis from withdrawal even if the account has been cleared in full (Amex, Barclaycard, HSBC, John Lewis, M&S, Sainsbury’s, Santander).
Another approach is to charge interest from the date an item is bought if the entire account has not been cleared each month with interest on cash and debt transfers on a daily basis (AA, Capital One, Clydesdale, Co-op, Creation, Leeds, MBNA, Metro Bank, NatWest, Norwich & Peterborough, Royal Bank of Scotland, Smile, Vanquis, Virgin Money, Yorkshire Bank).
Tesco takes a different approach with interest charged from the date the item is charged to the account if debits have not been cleared in the previous and current month with interest on cash charged on a daily basis.
Finally, if you have a poor credit history and have been turned down for a card, try Bradford-based sub-prime lender, Vanquis. It sets a minimum income of just £4,000.