How to win the credit card game

With card issuers cutting introductory rates to the bone, can you avoid paying interest altogether?

If your credit card balance runs into thousands you may be tempted to switch to one of the growing number of rival cards promising rock-bottom interest rates. Many borrowers are paying upwards of 20 per cent on cash purchases on credit cards. Yet a number of recent card issues have set rates at only a fraction of this level.

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If your credit card balance runs into thousands you may be tempted to switch to one of the growing number of rival cards promising rock-bottom interest rates. Many borrowers are paying upwards of 20 per cent on cash purchases on credit cards. Yet a number of recent card issues have set rates at only a fraction of this level.

In June, Abbey National's online bank offshoot Cahoot launched with a credit card charge of a (literally) unbeatable zero per cent, an offer that has now closed. But this week RBS Advanta, a subsidiary of the Royal Bank of Scotland, cut introductory rates to a market-leading 2.9 per cent APR on its Classic, Gold and Platinum cards.

Other competitive introductory deals are available from building society Nationwide, which offers 3.5 per cent, while Capital One Bank offers 3.9 per cent and Marbles charges 4.5 per cent. Most of these deals apply both to new purchases and the balance outstanding on your existing card, if you transfer it to your new issuer. So if you are paying, say, 19.9 per cent on Barclaycard, it could be time to switch.

The introductory rates last for a set period, typically six months, although RBS Advanta lasts slightly longer, until June 2001. Thereafter, you revert to the card issuer's standard rate. Check this rate carefully, as this is what you will be paying in the longer run.

RBS Advanta's introductory rate shoots up to 17.9 per cent (Platinum 16.9 per cent), Nationwide increases to 14.6 per cent, Capital One Bank to 12.9 per cent and Marbles to 14.9 per cent. All still better than Barclaycard. But then, why pay this rate at all? Canny readers will have realised it is possible to enjoy a life of low-cost credit card borrowing, by hopping from one issuer to another when the introductory rate is over.

You may assume there is a catch to card surfing, after all lenders are not famed for their generosity, but there isn't. Few credit cards have the type of lock-in period imposed by many attractive mortgage deals. You are free to switch at any time.

"There are no lock-ins on any of these credit card deals, so people can switch from one low rate to another in theory," admits Mark Austin, marketing manager for Tesco Personal Finance.

Tesco currently offers a competitive 4.9 per cent introductory rate on balance transfers and purchases until April 2001. Mr Austin recognises that some customers may enjoy that rate then look elsewhere when it leaps to 15.9 per cent thereafter. "There is nothing to stop people switching credit card issuer endlessly," he says.

Providers rely on a number of factors when they calculate whether they can afford to offer loss-leading introductory rates. The first is inertia. Most people have got better things to do with their time than mess around switching credit cards.

They also hope to build customer loyalty. "It is up to us to keep customers interested in our product and services. We aim to offer consistently attractive rates over the longer term. Most people want to avoid being ripped off, rather than getting the best rate on all occasions," says Mr Austin.

A third factor hindering switching may be fear of the credit reference agency. A record of any mortgage borrowing, personal loans, TV rental agreements and credit cards is retained by financial services companies.

This data is then pooled by two agencies, Experian and Equifax, who supply it to banks, building societies and so on to check your creditworthiness. They also store information on any bankruptcies or county court judgments against you.

If you apply for a new credit card, this will go on your record. But Jill Stevens, director of consumer relations at Experian, says that switching every six months or year is unlikely to give you a black mark.

"It depends on the lender, as they search the data we provide for different things. Some might look warily at someone who had applied for a new credit card every six months for the past three years. However, low introductory rates are a fairly new phenomenon and I suspect they may not take switching into account," she says.

Ralph Charlton, spokesman for Cahoot, agrees that regular switching is unlikely to damage your credit rating. "If you made one or two credit card applications a year you would not get a bad credit rating. However, if you made a large number of applications, that may change. Somebody making 20 applications would not get a great score."

Mr Austin also agrees: "It is not a precise science. If you made six credit card applications in six months it could have an adverse effect on your ability to gain credit, as it does form part of the credit score. But not if you simply moved cards every year or six months."

Keeping a clean record at the credit reference agency is important. A poor credit rating could mean you would pay more to secure a personal loan, for example, or be refused a credit card or mortgage altogether. But keep your credit card applications within reason and you can benefit from consistently low rates, lower than anything you would get on a personal loan. Direct Line charges a competitive 11.9 per cent to borrow £5,000 over three years, which falls as low as 8.8 per cent on larger sums, but even this is still beaten by the introductory rates.

Mr Austin argues against using a credit card as a substitute for a personal loan. "The drawback of using a credit card instead of a loan is that a loan has a structured repayment programme and you eventually pay it off. A credit card does not have that, and you may never clear your borrowing."

Fiona Gaze-Fitzgibbon, marketing manager with RBS Advanta, argues that rate is not the only thing to take into account when choosing your credit card provider. "Having a credit card should be a long-term relationship offering long-term good value. After all, more than 60 per cent of credit card owners clear their balance each month without incurring any interest payments."

When switching, you should check carefully to see what the introductory period is really offering. For example, RBS Advanta charges both balance transfers and purchases at 2.9 per cent throughout the introductory period. Nationwide, Marbles and Tesco also offer their introductory rates on both balance transfers and purchases. But Capital One Bank does not extend its 3.9 per cent introductory rate to balance transfers, where you must pay the higher rate of 9.9 per cent.