Zero-interest days are numbered for the 'rate tart' generation

If you've got a credit card in every port, watch out. Sam Dunn finds lenders keen to put a stop to financial bed-hopping
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Promiscuity may no longer pay when it comes to financial products. So-called "rate tarts" who shift their debt from one credit card to another, each offering a 0 per cent introductory deal on balance transfers, could become an endangered species.

Promiscuity may no longer pay when it comes to financial products. So-called "rate tarts" who shift their debt from one credit card to another, each offering a 0 per cent introductory deal on balance transfers, could become an endangered species.

Our zeal for these deals is costing lenders £1bn a year and causing them to look for other ways to win and keep customers, warns Precious Plastic 2005, a report from accountants PricewaterhouseCoopers (PwC).

The proliferation of such introductory offers in the battle for market share has squeezed card margins to breaking point, says Richard Thompson, author of the report. "We anticipate that card issuers are likely to become increasingly selective about which customers they offer [0 per cent deals] to."

To foster loyalty, he says, customers will probably be offered lower standard annual percentage rates (APRs) and "lifestyle" reward schemes, with incentives such as gym membership or airline tickets.

But consumers who have moved debts from one piece of plastic to another could be categorised as "card churners" and turned down by providers, warns Stuart Glendinning of moneysupermarket.com, the financial products comparison website - even if they have healthy credit ratings. This is because they will be thought likely to vanish once any introductory offer ends.

"I think providers will try to identify the characteristics of card churners and say 'no' - even if you have a brilliant credit card reference," says Mr Glendinning. "No company should be obliged to do business with somebody who will lose them money."

Given the huge profits regularly reported by banks and card firms, there will probably be little sympathy among consumers for those lenders now counting the cost of their 0 per cent offers on balance transfers.

But Mr Thompson's report says that these deals "are cannibalising [lenders'] margins" and warns that card companies will get more choosy about who they accept as customers.

The problem is that the free debt has quickly become a way for people with a short-term attitude to their finances to run up permanent debts. Where once consumers were offered a six-month balance transfer at 0 per cent, the introductory period is now nine months, 12 months or even longer in some cases. Earlier this summer, Barclaycard offered 0 per cent for 13 months but had to pull the promotion after eight weeks due to overwhelming demand.

If offers of 0 per cent interest start to dry up, many consumers could find themselves in financial difficulty.

"People think that it's a never-ending gravy train," says Scott Mowbray of Virgin Money. "But 0 per cent cannot go on for ever."

Change is already on the way. In August, Barclaycard introduced a 2 per cent balance transfer fee capped at £35. And some cards now switch customers from the 0 per cent deal on to the higher standard APR if they miss repayments or exceed agreed credit limits.

Mr Glendinning doesn't think 0 per cent deals will die out. But in the short term, card users should expect them to become more complex, he says.

"You can't get the genie back in the bottle. I think we'll see more 0 per cent deals linked to conditions, more complexity and even fees."

Britons owe £60bn on their plastic, and six out of seven new cards issued go to consumers who already have one, says Mr Thompson's report for PwC.

But while we're clearly quick to fill our wallets with plastic, our readiness to move from one credit card to another is causing headaches for lenders. Thanks in part to the advent of price comparison websites, consumers are becoming ever more financially sophisticated, making it difficult for companies to win their loyalty.

Martin Hall, director-general of the Finance & Leasing Association, the trade body for consumer finance companies and specialist lenders, says that card users know how to play the system.

"A lot of people are becoming pretty savvy with these card rates - they pride themselves on not paying any interest.

"The tendency for shopping around is very strong."

There are a number of reasons for this trend. Among them is the greater transparency provided by the introduction of credit card summary boxes. Better financial education for young people in schools and for the public at large, via the media, has also played a part.

"With these developments, keeping the loyalty of the consumer is going to be quite difficult - it's a challenge for the industry," Mr Hall adds. "If it proves difficult to generate loyalty, I think we can expect to see less generosity from lenders."

One in five of us now have at least four credit cards, according to the Association for Payment Clearing Services, and while 0 per cent deals are not going to vanish any time soon, a few simple steps can help you get a better handle on your debt - particularly if this is on more than one card.

"If you have two or three cards with different amounts on them, transfer the biggest debt to the card with the cheapest rate," advises Susan Hannums of independent financial adviser Chase de Vere.

It's a good idea, too, to reduce the number of cards you hold. "If you're not the kind of person who keeps track of different deals, you could find your debt sliding off the 0 per cent deal and on to higher APRs," Ms Hannums adds.

Having too many cards can also affect your credit rating.

Remember that when you make repayments to a card issuer, balance transfers charged at low introductory rates of interest are usually paid off first. This can leave debts building up on new purchases.

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