Your Money Loans: Take the credit

Keen competition has led to a crowded market-place for credit cards. Look around for the best bargain, advises Simon Read

It's been only a generation since credit cards came to Britain; now there are more than 27 million card-holders - though many people have more than one - and the habit of using "plastic" for day-to-day expenses has taken off.

Barclaycard and Access were Britain's first credit cards for the man in the street. In the early days credit cards were seen as encouraging people to spend beyond their means. There have been casualties along the way, but more than half of all credit card holders now pay off their balance each month, using credit as a useful tool to help budgeting.

The growth of this kind of use led issuers to introduce annual fees, which effectively led to today's crowded market-place of more than 70 different cards, all with different fees and interest rates.

This year has seen a rash of new credit card launches, largely prompted by American finance houses keen to get a slice of the UK market, such as People's Bank of Connecticut and the Advanta Corporation. The newcomers are challenging the established giants on price. While Barclaycard charges 22.3 per cent APR, the new cards have slashed their interest rates. MBNA, for example, charges an APR of 18.9 per cent, and People's Bank 14.4 per cent, while RBS Advanta currently charges an introductory rate of 11.9 per cent. British Gas launched its Goldfish card with an APR of 18.9 per cent.

On top of that, whereas Barclaycard, like most other UK credit cards, charges an annual fee of pounds 10, most of the new cards have done away with the fee.

With all these cheaper cards on the market, why do so many millions still use the more expensive traditional cards? The first reason is apathy. Even knowing that there are better deals elsewhere, we stick with what we know. After all, what's the point of going to all the trouble to switch cards just to save a couple of pounds? Also, according to the issuers, they offer much more than a means of short-term borrowing. Many of the newer cards can afford to have lower rates because you're not paying for insurance or loyalty schemes.

But is it really worth paying more for these extras? Not according to Steve Worthington, professor of Marketing and Financial Services at Staffordshire University. He recently compared 15 loyalty and credit card bonus schemes.

The Bradford & Bingley card came out best in the survey, offering pounds 120 off a Bradford & Bingley mortgage to card-holders who spent pounds 3,000. But this is of use only if you have a mortgage with the building society, and in these days of strong competition in the mortgage market, that in itself could be a mistake. Elsewhere, a pounds 3,000 spend on a Barclaycard will give you bonuses with a monetary value of up to pounds 14.75, although Professor Worthington's research missed out the fact that the same spend will give a pounds 150 discount on a new Ford car. First Direct Visa holders qualify for a pounds 10 Marks & Spencer voucher after spending pounds 3,000.

It hardly looks good value, does it? With First Direct charging 20.9 per cent APR and Bradford & Bingley 18.9 per cent, you're likely to get better value by taking a cheaper card.

The third reason that millions haven't made the switch to cheaper borrowing could be because the newer firms are tougher when it comes to issuing cards. All applicants are credit scored and, though new card issuers say they use the same systems as long-established operators, suspicions persist that they are trying to skim off the "better" customers.

On the other hand, if you do pay off your outstanding balance each month, then you won't be paying any interest - so you may as well choose the card with the most benefits. But check the small print - some cards offer up to 56 days' free credit, but some offer 50 or 46 days. Those extra few days could be crucial, particularly if you're waiting for pay day before paying off your card.

Beyond the mainstream cards, there is a further range to choose from. Gold cards normally offer cheap rates and other benefits - but there is a minimum earnings requirement of pounds 20,000 per annum, and most charge expensive fees. For instance, the Co-operative Gold card charges just 10.5 per cent APR, but has an annual fee of pounds 120.

There are also charity-related cards such as the Midland Bank Carecard, which pays pounds 10 to your chosen charity when you take on the card, and 0.25 per cent of all your purchases. Carecard charges an APR of 18.09 per cent and has no annual fee. Your donation can benefit any of up to 15 charities. Midland operates the National Trust Card and the Arts Card at the same APR. Between them the affinity cards have raised more than pounds 2m for the organisations concerned