Customers return to the card trick

Plastic is back in fashion. Alison Eadie looks at the options in a crow ded market

Credit cards are back in demand. For the first time since 1989 more people are taking them out than chopping them up, according to findings from NOP Research Group. And they are spoiled for choice. Perks, discounts, bonus points, tiered interest r ates, choice of payment dates, and affiliations with charities, universities and professional associations are all part of today's offering.

The past 12 months have seen an explosion of co-branded or affinity cards, says Liz Phillips, director of Credit Card Research Group. The GM Card from Vauxhall, launched in the UK a year ago, started the ball rolling. According to NOP, the GM card "has helped reverse a trend of rationalisation by consumers which began with the introduction of charges at the end of the 1980s".

The GM Card has been hailed as the fastest-growing credit card in the UK, with more than 500,000 cardholders already. For every £I00 spent, £5 goes towards the cost of a new Vauxhall. Some 10,000 Vauxhall cars and vans have already been bought using rebate points. Other attractions are a lower-than-average interest rate on unpaid purchases at 19.9 per cent APR and no annual fee.

The push by overseas banks into the UK market in recent months has expanded the choice. More than 20 banks, building societies and financial institutions are issuing credit cards. The GM Card is issued by HFC Bank, a subsidiary of Household Internationaland the fifth-largest issuer of Visa and MasterCard in the US.

MBNA International Bank and Beneficial Bank, both of the US, are pushing hard for new customers. Beneficial has signed up the British Medical Association, the Law Society and Manchester United Football Club. MBNA issues the Burberry Cards, where every £50 spent earns £1 against purchases in Burberry stores.

With such a choice, what should consumers look for? Much depends on whether the consumer is a prompt payer or a borrower. The trend towards paying off bills in full each month is rising. Some 50 per cent of cardholders pay in full each month and 75 per cent pay in full most months except at Christmas and holiday time, the CCRG says.

Prompt payers should look for perks and can ignore penal rates, but borrowers should go for the best financial deal.

The Robert Fleming/Save & Prosper card targets borrowers, with a 14.6 per cent APR on unpaid purchases, a £12 annual fee and 56 days' interest-free credit. Mark Austin, a marketing executive with Save & Prosper, says 80 per cent of cardholders take extended credit. He adds that some wily operators accumulate redeemable points on other credit cards and then transfer the outstanding balance to S&P to pay it off at a lower interest rate. "There is a hard core of price-sensitive people in this market," he said.

The Royal Bank of Scotland differentiates between the two types of customer. Its MasterCard is aimed at borrowers, with an APR of 16 per cent on balances below £l,000 and 14.5 per cent above £l,000. There is no annual fee, but also no interest-free period so interest starts clocking up from the date of purchase. Its Access and Visa cards are aimed at prompt payers, with an APR of 22 per cent, a £I0 annual fee and 56 days' interest-free credit.

For prompt payers the perks count more. Barclaycard has increased its lead over the past year and lays claim to 36 per cent of the market. A high-profile advertising campaign featuring Rowan Atkinson has helped to boost applications for new Barclaycards to a six-year high.

The permutations are endless. Bank of Scotland, the market leader in affinity cards, issues its MasterCard to more than 300 groups. Charities benefit by gaining 25p for every £I00 spent. But co-branding can go to strange lengths. BoS will soon be launching a Star Trek card for fans of the long-running television series.

Professional groups can get better deals, depending on their clout. The Law Society has teamed up with Beneficial Bank to gain advantageous rates. Solicitors earning more than £25,000 a year qualify for an APR of 17.5 per cent. Those earning less pay 18.9 per cent.

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