Be sure to have the winning card

It used to be so simple, Just Barclaycard or Access and an exorbitant interest rate. Credit is a more complex game now, says Nic Cicutti

Taking out a credit card used to be a sign that you had arrived. Quite where was never clear. But there was a time when cards were up there with prawn cocktails, avocado bathroom suites, Ford Granadas and all the other paraphernalia of modern living.

Then, everyone got a card and they became just another simple means of obtaining credit. And today? Suddenly, things have become complicated, with your choice of card and - even more importantly - the use you put it to, having the potential to make a significant difference to your financial affairs. "Double-dipping" and similarly exotic terms are the essential requirement of successful card usage.

The change in the way we use our cards is down to a combination of factors. The first is the rapid multiplication of special deals available from credit card issuers. The old monopoly, where Barclaycard and Access (now owned by MasterCard), cornered the market and charged exorbitant rates of 22 per cent or more has been challenged by a range of new entrants into the market.

Liverpool Victoria friendly society this week became the latest to launch its own Visa card, charging a rate of 18.9 per cent. The society claims its rate is "competitive", although several other issuers can beat that APR easily.

Royal Bank of Scotland's MasterCard charges 14.5 per cent APR, while the Robert Fleming/Save & Prosper card, available in both Visa and MasterCard liveries, charges 14 per cent APR. People's Bank of Connecticut charges 14. 4 per cent APR on its Visa and MasterCards.

To win customers in what is becoming an increasingly crowded market, many issuers are offering special deals, such as very cheap credit during the first few months of a card being taken out. For example, Saga, which recently launched its own Visa card aimed at older customers, is offering an introductory rate of 11.9 per cent APR for the first six months after the date of issue.

While such deals can seem tempting, there is sometimes a sting in the tail, such as issuers giving themselves the right to charge the full rate if users repay a transferred debt from another card within a specified time limit. Or if the user does not spend a minimum on the card within a certain time limit. It pays to check such special offers carefully.

Another feature of cards is the different interest-free periods (or none) that they offer their users before charges are levied on any amount owing on the card. Most vary from 46 days, available from many charities which offer cards including Amnesty, Children's Aid and Greenpeace, to 50 days from Bank of Scotland and 52 days from the Goldfish card, which is linked to British Gas. Most other cards offer a 56-day interest-free period, with a few others giving an extra day's grace.

Some cards, including those from Barclays, claim to offset their higher rates with a series of loyalty schemes in which points given for every pound spent can be swapped to receive exciting gifts, including toasters, coffee makers, secateurs and leather travel wallets. Others (Barclaycard again, plus Liverpool Victoria's new issue) have more useful advantages, such as 100 days free insurance on most purchases.

Liverpool Victoria's card also offers pounds 75,000 free travel accident insurance, interest paid on credit balances (in the unlikely event of overpayments), plus a points scheme which offers discounts on motor, travel and home insurance if bought through Frizzell, the broking firm also owned by Liverpool Victoria.

Together with Frizzell, which has long offered its own card, the Liverpool Vic levies no additional fee for overseas transactions, which can save up to 2 per cent on all money spent abroad.

Perhaps the greatest advance in the way we use credit cards to obtain the maximum benefit from them has been the concept of "double-dipping". This seemingly simple but often underused strategy means using two cards when making purchases from several outlets, such as the store's own loyalty card together with a credit card. In this manner, added benefits come from combining the two cards.

For example, using a GM Card, launched by the car firm in 1993, allows cardholders to amass rebate points off new Vauxhall cars. The actual value is about pounds 90 for every pounds 3,000 spent when using the card. Since the launch, more than 50,000 people have used their points to obtain a discount on a Vauxhall car.

But the added advantage of double-dipping comes when a GM Card or its Ford Barclaycard equivalent is used in conjunction with another loyalty card, such as a Shell Smart Card. The Shell card can be used in petrol stations, but also in John Menzies stores and, in Scotland, Dixons, Curry's, Vision Express and Victoria Wines. The effect of this is that on a spend of pounds 3,000 using the Shell Smart Card, one can achieve a "rate of return" of about pounds 52, or up to 2 per cent.

Alternatively, Bradford & Bingley's Visa or MasterCard offers a 4 per cent rate of return if a new mortgage is taken out. A pounds 3,000 spend will then give a pounds 120 cashback on completion of a new mortgage. Alliance & Leicester takes the system to its logical conclusion by simply refunding between 1 and 2 per cent of every penny spent to its cardholders.

Steve Worthington, a professor of financial services marketing at Staffordshire University, who first argued in favour of the double-dipping strategy, says considering where and how to use a card can help save many cards. But there is a third factor to consider, he adds: "Consumers need to be aware of their loyalty programme choices, for the astute cardholder can benefit three times over by choosing and using the most appropriate loyalty cards."

Mr Worthington recommends using a loyalty-based credit card with no annual fee. The combination of no fee and an interest-free period means cardholders can receive up to 56 days' credit at no cost if they repay the amount in full at the end of the account period.

In effect, consumers are borrowing money for free, gaining loyalty points from the card plus more points from the non-payment card - all in the same transaction. This process has now been baptised "double dipping plus".

If we follow the good Professor's advice, we will soon all own a vast paraphernalia of cards, which can be whipped out on every conceivable occasion to earn huge amounts of loyalty points. Sadly, avocado bathroom suites are not on offer under any loyalty scheme.