The credit crunch rumbles on but there are still plenty of options available to borrowers…
In recent years the phrase was ‘pick a card, any card’ as the UK credit card industry thrived – the power was very much in the hands of the consumer with so-called ‘rate tarts’ merrily hopping from one deal to another.
Last year, the personal finance version of the Big Bad Wolf arrived in the form of the credit crunch. This has had quite a significant impact on the cost of loans and mortgages and it could filter through to credit cards.
However, you can still grab hold of some fantastic plastic – but you must be careful about the way you shop.
The emphasis now lies with you, the consumer, to be more credit conscious and to have a better understanding of your credit profile. It is important to try and understand that there may be some cards that you simply won’t qualify for. Every application you make leaves a footprint on your credit file and this could have a negative impact on your score, so try not to apply for deals you won’t get.
Have a read of “How to improve your credit score”, an article produced for moneysupermarket.com by Equifax, a credit reference agency, to help you improve your credit rating and maximise your chances of getting a good card deal.
If you think about your circumstances, you should be able to identify the credit card that’s right for you. Here are my picks based on various scenarios:
If you have a good credit score but an outstanding balance:
Many of those who borrow on credit cards have very good credit scores because they’ve never missed a payment or gone over their agreed limit. If this is you then you should be able to take advantage of one of the many 0% balance transfer deals on offer. Why pay interest on your debt when you don’t have to?
You will be charged a fee of up to 3% for transferring your balance over from another card but this is well worth paying if you then get a long interest free period during which time you can clear your debt. If you do not manage to pay it off in full, look to move it over to another 0% deal once the introductory period ends.
The Virgin Credit Card is offering 0% on balance transfers for 15 months, with a 2.98% transfer fee. However, don’t be tempted to spend on this card as well unless you can afford to repay everything within three months. Any purchases you make are interest free for the first three months, after which you will be charged 15.9%. Like most providers, Virgin clears the cheapest debt first, so your monthly payments will then go towards repaying the transferred balance, leaving you accruing interest on the purchases you’ve made.
Alternatively, if you would like a card to spend on, the Halifax One Online Special has a 12 month interest free period on both purchases and balance transfers. After a year, the rate of interest increases to the standard rate which is 15.9%. The transfer fee on this card is 3%.
If you have a good credit score and pay off your balance each month:
Clearing your balance in full each month means you will not pay any interest, so rather than going for the card with the lowest rate, look for one that offers a loyalty scheme such as reward points or cashback.
There are a host of excellent cashback deals on the market but my pick of the bunch is the American Express Platinum which offers 5% money back on purchases up to £4,000 for the first three months. You then earn 0.5% on the next £3,000 you spend on the card, rising to 1% on spending between £3,001 and £10,000 and 1.5% if you spend more than £10,000.
If this card doesn’t appeal to you, then check out our credit card comparison tool as there are numerous deals available offering cashback on everything from fuel to supermarket spend.
If you have an adverse credit score:
There are still options open to you, even if you have a poor credit score. However, if you are in this position, you need to be very careful about what you apply for – you will not be accepted for the market-leading deals, so don’t even bother trying to get them as failed applications will do nothing to help your credit score.
Our Smart Search tool will give you a clearer idea of the deals that are available to you. It enables you to enter a few details about your credit history. Based on this information, moneysupermarket.com will display cards that you are most likely to qualify for, reducing the risk of you not being accepted for the card.
The interest rate you are offered will be higher than average, but if you use the card well and stay within your credit limit, it should help improve your credit rating, making it easier for you to get a more competitive deal further down the line.
One of the best cards on the market for those with less than perfect credit scores, is the Barclaycard Initial, which offers a typical rate of interest of 27.9%.
Think carefully about the card you choose and become a smart shopper – both with the credit card you pick and how you use it.