'What you should know when changing your credit card provider'
July 18, 2007 at 4:32 pm
These days it would appear as though just about every organization, from your trusted local bank to your favourite department store, provides their customers with some new sort of credit service. Navigating between the varied credit card services available is difficult at the best of times. However, changing your credit card provider can often be a rather confusing process. So what should you be aware of when moving between different credit card providers? There are a number of key facts and issues that one should always bear in mind when taking this important decision.
People often choose to change their credit card provider in order to manage debt. If you find yourself unable to deal with your current credit debt, switching to a different provider will allow you to take advantage of the extremely low interest rates offered by many card companies on debt transfer. Indeed, many providers offer other exclusive deals to new customers as well, such as air miles, cashback agreements and free insurance services. But, caution is the key! Providers will often stipulate that transferred debt must be paid off over a certain period of time – for example six months. If you fail to pay off your card debt by the end of this period, interest rates will revert to their original (often very high) level and the initial savings gained by switching provider will soon be exceeded by the costs of high interest payments.
The best way of dealing with debt is by making sure that you are not in debt – repay as much of the outstanding balance on your new card as possible each month. Staying alert is particularly important if your reason for switching provider was debt-related in the first place. Be wary of store cards. These days, almost every high street chain offers their own store card – as a rule of thumb you will invariably end up paying more for your purchases in the long-run if you choose to use these cards.
The final factor you need to consider when changing your credit card provider is your credit rating. Your credit rating is determined by levels of outstanding debt and as such might be adversely affected if you continually take out new credit cards. Lenders may be unwilling to issue you with additional credit cards if they believe that you have too much outstanding credit and as such are likely to default on debt repayment. For further help with debt-related issues, click here.
So, next time you choose to change your credit provider, bear a few facts in mind. Remember that preferential interest rates will only be in effect for a short period. Banks should, however, provide you with some warning before interest rates revert to their normal level. Keep your credit card debt as low as possible and be vigilant when taking out new cards. Finally, be warned that taking out too many credit cards could adversely affect your credit rating. Happy shopping!
'UK celebrates 20 years of debit cards'
July 18, 2007 at 4:09 pm
This June marks 20 years since Barclays first introduced the debit card to British consumers back in 1987, and to celebrate the significant milestone, payment trade association Apacs has compiled a list of statistics relating to the plastic card.
When the debit card was first introduced in the UK, it heralded a significant shift in the way consumers made transactions. Thanks to the debit card, many people cannot remember the last time they had to write a cheque and some retailers no longer even accept them as a valid form of payment.
Beyond paying for goods in shops, restaurants and supermarkets, debit cards also brought about the advent of automated teller machine (ATM) ‘hole in the wall’ cash withdrawals, not to mention heralding in the cash-back system, and helping the once nascent e-commerce sector become what it is today.
Apacs has calculated that there are now over 41 million debit card holders in the UK, 84 per cent of the entire adult population. In 1987, only 34 per cent of UK adults had any plastic in their wallets, and most of this consisted of credit cards. There are 68 million debit cards in circulation today, compared with just 19 million in 1990, three years after their launch.
In 2006 alone, Brits made 4.5 billion purchases on their debit cards (143 every second), spending a grand total of £194.9 billion, five times the amount spent just ten years earlier. Last year, each person with a debit card used it 166 times on average, making £4,799 worth of purchases and withdrawing £3,848 in cash.
Jenna Smith, head of PR at Apacs, commented on the 20th anniversary celebrations: “It’s hard now for most of us to remember what life was like before the debit card, as it’s become one of those things we’re unlikely to leave home without. Before 1987, most of us were totally reliant on cash or cheques, and although credit cards were used in supermarkets at that time, they only made up six per cent of transactions.
“Today, cards amount for 66 per cent of supermarket spending, and most of this is on debit cards,” she continued. “In fact, over a third of all debit card transactions are made at the checkout.”
Bright future
Apacs goes on to estimate that spending on debit cards will double by 2016, to over £400 billion, due in part to the introduction of ‘contactless’ payments technology, which could remove much of the need for consumers to carry small change. Analysts are already predicting advancements as ‘sci-fi’ as voice recognition in the debit card’s future.
With more credit cards introducing annual fees, experts are expecting the practice to once again become ‘the norm’ within three years; financial research company Defaqto has gone as far as to suggest that debit cards could be boosted by a mass exodus of casual credit card users, stung by fees.
Commenting on the growing number of credit card providers implementing fees, David Black, head of banking at Defaqto, predicted: “This will herald a significant contraction in the market size as people who clear their outstanding credit card balances on a monthly basis will, as they start facing annual fees, jettison credit cards in favour of using debit cards instead.”
'One in five consumers unhappy with their current credit card'
July 18, 2007 at 3:19 pm
A report by the price comparison website uSwitch has revealed that 20% of consumers (some seven million users) are currently dissatisfied with their credit card provider. The uSwitch survey examined customer satisfaction across a variety of different categories, ranging from payment and application services to value for money. Despite general dissatisfaction however, card-holders were often unwilling to change their card provider. Given the growing popularity of credit cards in the United Kingdom, this appears a rather worrying development.
In terms of satisfaction and performance, Nationwide was ranked the best provider – only 6% of customers reported problems with their card provider. According to Mike Naylor, Personal Financial Expert at uSwitch, Nationwide’s success can be credited to “…their unusually preferential order of repayments and the lack of exchange rate loading fees on its credit card overseas.” American Express and Morgan Stanley also fared well in the uSwitch poll. Capital One which currently has 6% of the market share in the UK received the worst rating amongst card providers with 32% of card-holders – a whopping 1.9 million individuals – reporting dissatisfaction.
There are a number of important reasons behind card-holders’ frustration. Part of the blame can be attributed to high annual interest rates and poor customer services. Some card holders, however, have little choice when it comes to the matter. Consumers with poor credit ratings often find themselves unable to switch to a different card provider.
However, the majority of unhappy card-holders are unlikely to take any action against their card provider. Surveys suggest that card-holders are likely to stay with the same card provider for an average of six years regardless of whether or not they are content with the services provided. As a consequence high street credit card providers still dominate the market, holding two-thirds of market share and serving 21.5 million customers across the country. Card-holder indifference can be attributed to a number of factors. These range from loyalty to the card provider (this was the case for 31% of customers) to general consumer apathy. Over half of consumers never compare their existing deal with other similar deals available on the market. As such card providers are able to rely on ‘customer lethargy’ to maintain their profits and have no incentive to improve the quality of the services offered.
These days switching credit card provider can be a quick process. There are also many savings to be taken advantage of if you choose to transfer to another card provider. For example you could save over £2000 in interest on a 13.0% balance transfer deal similar to those offered by banks such as NatWest and the Royal Bank of Scotland. Given the wealth of information available through price comparison websites and other media, finding the best credit card deal is no longer difficult. Price comparison guides, such as the magazine, Which? are a good starting point. Be sure to shop around for the best possible deal, as doing so could save you a great deal of money.
'What does my credit rating mean?'
July 18, 2007 at 4:16 am
An individual’s credit rating determines their level of credit worthiness – simply put, how willing lenders are to supply you with credit. Your credit rating is part of your general financial health; a good online method of assessing your overall financial health may be found here. Credit ratings are calculated based on a number of criteria, from financial histories and saving patterns to existing liabilities. Lenders believe that such information will provide them with a good idea of the likelihood of a borrower defaulting on their existing loans. The lower your credit rating, the more likely you are to be denied a loan. Furthermore, in the event that lenders agree to provide you with credit, the interest rates they demand on loans will be higher for borrowers with poor credit ratings.
In the United Kingdom, credit ratings are largely determined by two organizations: Experian and Equifax. They gather information on borrowers from a wide variety of sources ranging from county court judgments and house repossessions to degrees of personal indebtedness. Every credit transaction you undertake leaves behind an ‘electronic footprint’ and these footprints are closely monitored by the aforementioned agencies.
Based on the information provided by these organizations and their own findings, suppliers of credit may choose to deny you borrowing privileges. However, if you believe that you have been denied credit unfairly, it may be possible to contact the relevant agency and lodge a complaint. You will be required to pay a charge for this service, generally around £2. If your credit rating was miscalculated (because the resulting score was generated by a computer program) or if it was based on the financial records of individuals unconnected with yourself, then it should be possible to question the lender’s decision to deny you credit. However, it is not possible to remove any accurate information regarding your credit history from your file, no matter how unpleasant it may be.
What happens if a lender refuses to overturn their decision to deny you credit? The only real solution in this case is to improve your credit rating. The main reason behind a poor credit rating is a high level of personal debt. Remedying your credit rating therefore involves dealing with your debt issues and managing your spending effectively. Be warned, however, that whilst many firms claim to be able to raise your credit rating, this is by no means a foolproof solution. Indeed, a number of such organisations have been responsible for hoodwinking unsuspecting customers and scams are commonplace. Further advice on dealing with your credit score may be obtained from the Information Commission (Telephone: 01625 545 745 (Data Protection Helpline); 01625 545 700 (general)) which provides impartial advice and assistance to borrowers.
'The advantages and disadvantages of in-store credit cards'
July 18, 2007 at 3:40 am
Today, almost every high street chain provides its customers with the opportunity to benefit from greater discounts through the use of in-store credit cards. In theory, taking out a store card with your preferred department store seems an attractive venture. However, in practice, it is important to note that stores do not always have customers’ best interests at heart when devising such marketing strategies. Most individuals invariably end up spending more on purchases made using store cards because of high interest payments. As such there are a number of important issues that you should bear in mind when taking out an in-store credit card.
It is often difficult to resist the tempting discounts associated with most store cards. A ten or fifteen percent discount can save you a great deal of money when making large purchases. However, bear in mind that the purchases you make when using a store card are made on credit that is by no means interest free! Some store cards charge interest rates of up to 30% per annum. Needless to say you may end up paying more than you bargained for as a result. Beware of the other marketing strategies sometimes associated with in-store credit cards. Purchasing goods on a ‘buy now, pay later’ basis, for example, could prove rather expensive as your bills and interest payments add up.
If you still want the healthy discount offered by a store card, but do not want to face the prospect of mushrooming card payments, what should you do? Essentially, you need to make sure you are able to keep up financially with the payments that need to be made on your in-store card. Most stores offer an interest-free period on purchases of between 35 and 55 days. Furthermore, some retailers offer relatively lower rates of interest on credit purchases – the norm is roughly 20%, but some stores have rates as low as 13%. When deciding on an in-store card, it may also be worthwhile to look into whether or not the shop in question offers additional privileges to card-holders, as the advantages associated with these perks could well outweigh the costs associated with moderate to high interest rates. Some high-street chains also offer card-holders a host of other benefits, such as early-bird shopping privileges during seasonal sales or free shipping on purchases made online.
Thus, when taking out a store card, you should primarily take note of the interest rate you are expected to pay on outstanding payments once the interest-free period has lapsed. However, if you do find that your store card debt is spiralling out of control, there is help available. The Consumer Credit Counseling Service (CCCS) can provide you with impartial advice and assistance on this subject. Contact information for the CCCS can be found here.
'Spending on credit and debit cards rocketing'
July 18, 2007 at 3:29 am
The Association for Payment Clearing Services (APACS) has released a study entitled ‘The Way We Pay 2007; UK Plastic Cards’, which shows record spending on debit and credit cards in 2006.
A total of £321 billion was spent on plastic last year, around one third of total consumer spending in the UK. Cash, automated payment systems such as direct debit and cheques accounted for the other £710 billion.
Of the £321 billion, 61 per cent, or £195 billion, was spent on debit cards, leaving £126 billion on credit cards. This represents a twofold increase since 1996. The combined figure has trebled since that date.
Director of communications at APACS, Sandra Quinn commented, “Consumers enjoy the ease and convenience plastic cards bring, and today most retailers and supermarkets take plastic, as do an increasing number of professional service providers.”
This trend seems to be hinting at the possibility of a ‘cashless society’, where carrying around small change is a thing of the past. In Hong Kong, this is already something of a reality – people use the ‘Octopus Card’ to pay for public transport, newspapers, snacks and other items. This has been translated in London as the ‘Oyster Card’, which currently is just used to pay for public transport.
As part of their recent report, APACS has published a consumer guide to debit and credit cards, which gives details of the various cards on offer, what to look for and what to avoid.
Despite the clear upward long term trend in plastic usage, 2006 was the first time in the credit card’s 40 year history that spending actually fell year on year, with £1.6 billion less being spent in 2006 than in 2005. This decrease points to an increasing awareness among the public of the risks that can be associated with credit cards, and that rather than providing free ‘credit’, the cards are a rather expensive way to borrow.
This drop in usage comes after a period when credit card providers have been coming under pressure from consumer groups. The OFT is working with the industry to try and make the fees associated with credit cards more apparent to the customer, after a complaint was made by Which?.
'OFT wants credit card suppliers to make the cost of deals more apparent'
July 18, 2007 at 2:58 am
The Office of Fair Trading (OFT) has announced that it will ‘work hard’ with credit card providers to make their fees more transparent, after a ‘super complaint’ from consumer group Which? alleged that companies were being dishonest in the way they advertised their fees to consumers. When advertising their products, most credit card providers use the APR (Annual Percentage Rate), i.e. the amount of interest you pay on the ‘credit’ that lenders give you. However, the complaint comes following an investigation by Which? that identified six factors, other than APR, that effect the fees a customer pays on their card. However, these factors are not made clear to the customer at the point of purchase and so the public is unable to make a balanced, informed decision as to which card offers them the best deal.
Peter Vicary-Smith, Chief Executive of Which?, criticised the OFT for failing to fully confront the specific problem identified. “We presented the OFT with a simple problem. Instead of tackling this head on it has chosen a wider review.” Which? were hoping for the OFT to force credit card companies to adopt a single measure that gives an accurate impression of the fees the cards attract. Alena Kozakova, also speaking for the consumer group, said, “Two people who have two different credit cards with the same APR, and who use their credit cards in the same way, could be paying very different levels of interest.” A survey conducted by moneysupermarket.com identified that someone who used an HSBC Mastercard, with an APR of 15.9% paid £58 in fees a year, whereas a Sainsbury’s bank Mastercard holder paid £83 in fees, a difference of nearly 20 per cent. It is clear, therefore, that the Sainsbury’s customer who chose their card on the basis of the APR could have got a better deal elsewhere. This lack of clarity benefits the credit card industry by a figure as high as £400 million annually, Which? estimates.
The director of communications at APACS, Sandra Quinn, de facto spokesperson for the industry, made the standard argument against regulation. “Like the government, the industry is concerned that such standardisation would restrict or even eliminate consumer choice.” She fails to elaborate on how making companies more open about their pricing will have a negative effect on consumer choice.
Last year the OFT enforced a limit on how much credit card companies could charge to customers who were late paying their bill. A common charge of between £20 and £25 was reduced to a maximum of £12. However, companies have been recouping lost profits by adding hidden charges, such as charging interest on late payment of the £12 penalty fee. Many credit card providers are also intending to charge holders of inactive cards a penalty fee. Barclaycard, the country’s most popular credit card provider, is considering charging 1 million of its customers between £10 and £20 for low usage of their cards. Customers of Lloyds TSB already face a £35 fee if they don’t use their card regularly.
‘Charity credit cards gaining popularity with consumers’
July 18, 2007 at 1:17 am
A report by the Co-operative Bank has revealed that charity credit cards are gaining popularity with socially responsible consumers in the United Kingdom. Charity credit cards operate on the basis that a proportion of the profits generated through their use is donated to charity organization. These credit cards, also known as affinity credit cards, provide an excellent means of supporting a cause or organization that you believe in – whether it is your local football team or a charity working to combat AIDS in Africa.
Affinity credit cards are offered by a number of credit card providers. Here are a few details about the most popular charity credit cards.
- The American Express Red Card is perhaps one of the niftiest credit cards around. The card combines great style with excellent value; the annual interest rate of 12.9% is one of the most competitive on the market. American Express donates part of the profits made through this card to the Global Fund, an organization helping women and children with HIV/AIDS in Africa. 1.29% of total expenditure made using the card is donated to the charity.
- Another charity credit card which supports an excellent cause is that offered by the NSPCC. The card provider, Halifax, donates £10 to the NSPCC every time one such card is taken out. The card provider must donate 0.25% of all expenditure made on the card to the charity. With 0% on balance transfers for up to 9 months and annual interest rates at a very competitive 12.9%, this is easily one of the best charity credit cards around.
- The RSPCA Credit Card is another excellent charity card. The RSPCA receives a donation of £15 every time someone takes out one of these cards. The benefits to the RSPCA extend further. The charity receives a donation of 25p for every £100 spent and an extra pound for every year that the card is in use. From the perspective of improving your personal finances, the card is ideal. It offers an interest rate of 0% on balance transfers for the first five months. The standard annual interest rate is a competitive 14.9%.
- The Cancer Research UK Credit Card offers the consumer excellent value for money. Halifax donates £20 to the charity each time a new card is taken out and a further 25p for every £100 spent on the card. The card-holder receives an interest-free period of 9 months on balance transfers and interest rates are an extremely competitive 12.9%.
Charity credit cards provide a simple means of contributing to excellent causes. Given that they generally also offer excellent value for money, they might be the perfect option for first-time card-holders or those struggling with debt.
'Go Green with new Barclays credit card!'
July 5, 2007 at 10:44 am
In keeping with a growing trend, Barclaycard has issued a new green credit card. Barclays has pledged to donate fifty per cent of the profits generated through the new card, called ‘Breathe’, to charities working to combat climate change. However, many experts have voiced worries and it is questionable as to whether the Barclaycard will benefit consumers’ finances. Critics have accused banks of ‘jumping on the climate change bandwagon’; the ‘Breathe’ card it has been argued is no more than a clever marketing gimmick on the part of an institution wishing to raise its profit margins.
The Barclaycard encourages cardholders to engage in spending patterns which are friendly to the environment. It provides customers with discounts on loft and cavity wall insulation as well as greener forms of spending and holidays in the United Kingdom. Cardholders are also encouraged to travel by public transport through lower interest rates on purchases of bus and rail tickets. Cardholders will also be able to manage their finances online, thereby precluding the need for paper-based statements. The card itself is made from environmentally-friendly plastics. Finally, Barclays will donate 50% of the profits created to the charity organisation, PURE.
The ‘Breathe’ card has received some positive feedback. The price comparison website, www.moneysupermarket.com has praised the credit card stating that it provided consumers with “a genuine breath of fresh air in the credit card market”. The card charges an interest rate of just 14.9% which is significantly lower in comparison to other credit card providers. However, the rationale behind the card is somewhat questionable. Profits on credit cards are generated primarily through interest charges on late payments. Those consumers who pay their credit card bills before the interest-free period has lapsed will not be making a contribution to carbon reduction programs. Barclays will effectively make a loss on these consumers because they must make charity contributions based on the fact that these individuals hold the Breathe card. However, as card payments are made on time, there is no opportunity for the bank to generate a profit on the custom of these cardholders.
Barclaycard ‘Breathe’ is not the first such green card to enter the market. Pro-environment credit cards have been a growing trend in recent years as younger users become more conscious of the threat posed by climate change. A number of other financial institutions such as the Co-operative Bank offer similar cards; the organisation donates part of its profits to charities chosen by cardholders. In addition, HSBC provides consumers with a green option on its current accounts. Elsewhere, the American Express Red credit card sees part of its profits donated to charities working to fights AIDS in Africa.
For more details about the ‘Breathe’ credit card, discounts and participating dealers, click here
'Capital One launches two new cards'
July 5, 2007 at 9:41 am
Credit card provider Capital One has launched two new card programs this month, the Platinum Card and the Platinum Cashback Card. Both provide applicants over the age of 21, earning at least £10,000 a year, a slew of competitive introductory features on top of low typical variable rates.
Capital One Platinum Card
Offering 0% on both balance transfers and purchases until May 1st, 2008, the Platinum Card provides an extremely low typical APR (annual percentage rate) of 9.9% variable, which is currently only bettered by Intelligent Finance’s 8.9% offering.
While the 0% offer on balance transfers until May is not market leading in itself, the combination of a purchase deal that is bettered by only HSBC and Halifax creates a very competitive overall package. The card comes with a balance transfer fee of just 1.7%, easily one of the lowest in the market.
Customers will also receive access to a newly updated ID Theft Service, which was launched earlier this month. The new service helps customers safeguard their personal information and protect themselves from the dangers of ID fraud, as well as providing service to those who have been a victim of ID theft.
Justin Basini, head of brand marketing at Capital One, commented: “This new Platinum Card offers customers excellent rates for both balance transfers and purchases and coupled with our newly updated ID Theft Service is one of the best offers available on the market. It gives great all round value and is ideal for both those who want to transfer a balance as well as those who want to use their card to make new purchases.”
The Platinum Card has been well received by the industry. Lisa Taylor, of independent personal finance advisory service MoneyFacts.co.uk], lauded the new card: “It is great to see card providers offering competitive deals on purchases and balance transfers. It eliminates the need to operate separate cards for each spend type to avoid getting stung by interest payments from the unfriendly order of repayments method used by card companies.
“Overall this card offers a competitive all round deal. While it may not be market leading in all features, the card is simple, straightforward and offers an all round competitive package.”
Capital One Platinum Cashback Card
The Platinum Cashback Card offers customers 4% cashback on all purchases for the first three months, then 1% cashback on purchases made from that point onwards, and features a typical APR of 15.9% variable. It also offers customers with the same access to the new ID Theft Service as the Platinum Card.
“Capital One’s Platinum Cashback card offers one of the best cashback deals in the market,” said Mr Basini. “There are no complicated tiered spending requirements and there are no limits on the amount of cashback customers can earn. This makes the card ideal for people who use their credit card for every day spending.”
According to MoneyFacts, card holders spending £1,000 a month would earn an annual total of £210 cashback in the first year, not a bad return for using their card on routine spending.
“For anyone who repays their balance in full, a cashback card can be a great way of getting something for nothing from your card provider. But this kind of card is not for you if you don’t repay in full each month, as any benefit and more will be wiped out by interest charges,” warned MoneyFacts’ Ms Taylor.
