Credit card firms ready to do business again

More 0 per cent deals are in the offing, says Chiara Cavaglieri

After more than two years in the doldrums, it seems the credit card market is gearing back up, with a marked increase in the number of cards offering a 0 per cent rate to get people to transfer their balances. Are consumers really facing an easier time of it, or should they be watching out for pitfalls?

"Providers now feel ready to do business again in the current economic conditions and are actively trying to attract new customers," says Michelle Slade from comparison site Moneyfacts.co.uk.

At the start of 2010, there were a measly three cards offering a 0 per cent introductory deal on purchases of 10 months or more. Today, that figure stands at 11. Similarly, the number of cards offering 0 per cent for 10 months or more on balance transfers has shot up from 64 to 72. Among the new deals launched this year, stand-outs include Virgin Money's 12/12 MasterCard which offers 0 per cent for 12 months both on new purchases and balance transfers, as well as the 16-month 0 per cent balance transfer deal from Yorkshire Bank and Clydesdale Bank launched in May.

Consumers have also been tempted with improved offers from lenders including an extra two months at 0 per cent on the Barclaycard Platinum purchase card and an extension for Halifax All in One MasterCard users from 9 to 10 months at 0 per cent on balance transfers and new purchases. Despite the new and improved offers, however, providers are still operating very tight lending strategies and only applicants with a squeaky clean record are getting the nod on the best buys.

"Credit card providers are really focusing on the credit quality of their lending and, in many cases, this means existing customers," says David Black from financial analysts Defaqto.

Although 0 per cent deals are on the up so are interest rates on new purchases. The average rate now stands at 18.7 per cent APR; since the beginning of the year, several providers have upped their rates including Capital One Bank by 5 per cent, Sygma Bank by 2 per cent and Egg by 1 per cent.

Consumers can expect this trend to continue once new rights for credit and store card users take effect at the end of the year. The most notable of these new rights concerns payment hierarchy – the order in which credit card users pay off different forms of debt. Currently, with the exception of Nationwide, Saga and the Co-operative Bank, most lenders operate a negative payment hierarchy. This means that they repay the cheapest debt first, typically the 0 per cent deals, leaving more expensive interest such as purchases and cash withdrawal until last so that they accrue more interest.

From 2011, providers will have to use repayments towards the most expensive debt first.

"The US has already made these changes and as a result they have seen charges such as balance transfer fees rise to about 5 per cent. In the UK the average balance transfer fee is 3 per cent, but I'm sure this will be one of the first things to be hiked," says Andrew Hagger from Moneynet.co.uk.

To avoid being stung in the meantime, consumers are advised to have a separate card for balance transfers and for purchases. Alternatively, opt for a credit card which is already operating a positive payment hierarchy such as the Nationwide credit card.

Other top tips include avoiding cash withdrawals which can attract rates of nearly 30 per cent plus a typical fee of 3 per cent. This is even more important for overseas withdrawals as some cards will charge an additional foreign currency loading fee of between 2.75 per cent and 2.99 per cent. The Post Office, Saga and Santander have cards charging no interest worldwide, while Nationwide BS makes no charge in the EU.

"Gambling transactions and transfer of funds from your credit card to your bank account (which are known as money transfers) are also treated as cash and attract a fee of between 3 per cent and 4 per cent," warns Mr Hagger.

Expert View

Michelle Slade, Moneyfacts

"Deals on cards will remain on offer to attract new customers in the hope they will make money from the interest charged at the end of any introductory deal.

"However, when one revenue stream closes for card providers they will find another way to recoup the loss. Rates have already started to increase, with more providers likely to follow suit when they change over to a positive repayment hierarchy. We may also see other charges increasing or being added, such as foreign or low-usage fees."

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Payments Operations Assistant

    £23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

    Recruitment Genius: Telephone Debt Negotiator

    £13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

    Guru Careers: Communications Exec / PR Exec

    £25 - £30K: Guru Careers: We are seeking a highly-motivated and ambitious Comm...

    Guru Careers: Pricing Analyst

    £30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...

    Day In a Page

    On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

    On your feet!

    Spending half the day standing 'reduces risk of heart attacks and cancer'
    Liverpool close in on Milner signing

    Liverpool close in on Milner signing

    Reds baulk at Christian Benteke £32.5m release clause
    With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

    The big NHS question

    Why are there so few new GPs when so many want to study medicine?
    Big knickers are back: Thongs ain't what they used to be

    Thongs ain't what they used to be

    Big knickers are back
    Thurston Moore interview

    Thurston Moore interview

    On living in London, Sonic Youth and musical memoirs
    In full bloom

    In full bloom

    Floral print womenswear
    From leading man to Elephant Man, Bradley Cooper is terrific

    From leading man to Elephant Man

    Bradley Cooper is terrific
    In this the person to restore our trust in the banks?

    In this the person to restore our trust in the banks?

    Dame Colette Bowe - interview
    When do the creative juices dry up?

    When do the creative juices dry up?

    David Lodge thinks he knows
    The 'Cher moment' happening across fashion just now

    Fashion's Cher moment

    Ageing beauty will always be more classy than all that booty
    Thousands of teenage girls enduring debilitating illnesses after routine school cancer vaccination

    Health fears over school cancer jab

    Shock new Freedom of Information figures show how thousands of girls have suffered serious symptoms after routine HPV injection
    Fifa President Sepp Blatter warns his opponents: 'I forgive everyone, but I don't forget'

    'I forgive everyone, but I don't forget'

    Fifa president Sepp Blatter issues defiant warning to opponents
    Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report

    Weather warning

    Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report
    LSD: Speaking to volunteer users of the drug as trials get underway to see if it cures depression and addiction

    High hopes for LSD

    Meet the volunteer users helping to see if it cures depression and addiction
    German soldier who died fighting for UK in Battle of Waterloo should be removed from museum display and given dignified funeral, say historians

    Saving Private Brandt

    A Belgian museum's display of the skeleton of a soldier killed at Waterloo prompts calls for him to be given a dignified funeral