Conal Gregory: Which is the best credit card for you?

The strength of credit cards at this time of year is the facility they give in paying for goods and services in foreign currencies. Picture by PA.The strength of credit cards at this time of year is the facility they give in paying for goods and services in foreign currencies. Picture by PA.
The strength of credit cards at this time of year is the facility they give in paying for goods and services in foreign currencies. Picture by PA.
Credit cards have been available for over half a century and can be incredibly useful when making more than the normal transactions, such as at holiday time and Christmas, as well as bringing major consumer rights.

Their strength this time of year is the facility credit cards give in paying for goods and services in foreign currencies. If well chosen, no transaction fees arise from your provider.

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The first credit card launched in the UK was Barclaycard in 1966. It initially made little progress and had no rival until 1972. Today 65 per cent of adults hold a credit card. Last year 3.2bn payments were made, a four per cent rise on 2017. The industry forecasts the number of transactions will jump to 4.1bn by 2028.

Plastic money – charge, credit and debit cards - has become so popular that the number of cash payments has fallen by 10 per cent a year over the period 2012-17. Last year cash withdrawals through the Link system were down six per cent.

Credit cards offer a set spending limit and each month a minimum sum plus interest has to be paid. Charge cards have no such limit and no interest fee as the balance must be paid off promptly each month.

However, if a credit card problem arises, many providers have been slow to rectify. The Financial Ombudsman’s annual report paints a disappointing picture with a 26 per cent rise in complaints, up from 11,073 to 13,940 over just 12 months.

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Spanish bank Santander has been revealed as one of the problem providers. It has set aside £58m to compensate mistreated credit card customers following breaches of the Consumer Credit Act. Its pre-tax profits in the UK fell 12 per cent last year.

When considering which credit card most suits your needs, consider:

Interest-free period

Interest rate if not all repaid monthly

Charges for cash withdrawal

Foreign usage loading

Loyalty scheme.

Providers have two specific incentives to attract newcomers with introductory rates for balance transfers and purchases. The most competitive balance transfer terms are 29 months (Halifax, MBNA, Virgin Money). On average, borrowers have 25 fewer days to pay back than they did in January.

Make a note when the introductory period will expire. NatWest is helpful in sending a reminder prior to the end date. Watch though for two other factors: the actual transfer fee which has no minimum and the annual percentage interest rate (APR).

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On purchases, providers are offering up to 27 months with no interest charge (such as Barclaycard and MBNA). Look for the rate which applies thereafter.

The actual APR may not necessarily be the one headlined on websites, newspapers and branches as it depends on the individual’s credit rating.

Cards are becoming ever more imaginative. Apple announced in March that it is to join Goldman Sachs to launch a titanium card. It will not show a 16 digit number on its front or a security code on the reverse. Instead the Apple logo, a chip and the user’s name will be laser-etched onto the surface and the card linked to iPhone’s Pay and Wallet apps.

The card will be fee-free and offer a two per cent cashback. It will run on MasterCard’s network but use Apple maps to show where and when each transaction takes place with summaries weekly and monthly.

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Credit card statements bring more detail than bank ones which can be useful to keeping track of finances.

One of the major benefits of using a credit card goes far beyond the 30 days allowed to reject goods as faulty under the Consumer Rights Act 2015. A credit card purchase means the first named holder has protection from £100-30,000 under the Consumer Credit Act 1975, section 75.

This can be widely interpreted including if a holiday is lost when a travel company goes into liquidation. However, transactions made by additional card holders under the same account, such as a spouse or partner, are excluded from this protection.

Claims need to be made as soon as possible with an unofficial limit of 120 days of the expected delivery date.

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Watch out for charges on cash withdrawal. Analysis by Moneyfacts reveals that fees can reach five per cent (MBNA and Virgin Money for 11 of the latter’s cards, only excluding its 12 month Travel one). A three per cent rate is common but is free with Halifax Clarity, Metro and Santander Zero).

A credit card can be a boon abroad as the currency conversion is virtually at wholesale rates. However, fees can reach 2.99 per cent and so select one without such charges. Fee-free ones on a worldwide basis include Barclaycard Cashback Plus (for existing but new applicants), Halifax Clarity, NatWest, Post Office Money Platinum, Royal Bank of Scotland, Santander Zero, Tandem (both Cashback and Journey), Virgin Money 12 Month and Yorkshire Bank ‘B’.

If offered the option to pay on your credit card in local currency or sterling, always opt for the former as retailers will use a poor exchange rate, known as ‘dynamic currency conversion’, which works to their advantage.

Receiving cash back on purchases used to be widely available but is now restricted to a few schemes. American Express have two Platinum cards which offer a generous five per cent for the first three months: the fee-free Cashback Everyday, which can build up to £100 and then pays at 0.5-1 per cent or the Cashback (annual fee £25) where up to £125 can be earned followed by 1-1.25 per cent rebate.

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Barclaycard Platinum Cashback Plus is free and will rebate at 0.25 per cent until August 2023. Rebates at 0.5 per cent are given with both Santander’s All in One and Tandem Bank’s Cashback. The Tandem card is free but Santander’s costs £3 monthly.

Some users prefer a loyalty scheme or a card with benefits. Savings on travel and sometimes on hotels are given with Amex’s Preferred Reward, all Barclaycards except Cashback Plus, Creation, Sainsbury’s, Tesco and Virgin Money (except Atlantic cards). HSBC also offers such savings as well as a travel service on its Balance, Classic and Pur Plus cards

Low earnings are not a barrier to obtaining a credit card. At the time of issue excluding students and pensioners, the debt charity Stepchange found that 18 per cent were unemployed. This means that some four million have a sub-prime credit card, defined as where the interest rate is 30-70 per cent. Such users may explain how the default rate rose from 12.7 per cent in the last three months of 2018 to 22.9 per cent in the first quarter of this year.

In case of problems, do not rely on one credit card. Those with Visa cards have had them refused in Italy for several months. Providers like Barclaycard have a policy of not informing holders of problems and so such difficulties may come as a surprise.