It’s no secret that the credit crunch has had a major impact on the availability of credit cards and associated products. Special offers often used to coax new customers into using the cards are now becoming rare. 0% interest free periods are now being reduced in almost 50% of applications, and a lot of companies are tightening the qualifying criteria. So are there still any good deals to be had? Let JSTFinancial.co.uk guide you through the best deals on the market.
Following in the footsteps of the cheap mortgage deals, it has been reported by USwitch.com that 30% of all credit card providers have reduced interest-free periods in some of their cards by an average of 11%, or from 56 days to 50 days. The Alliance & Leicester MasterCard and the Cheshire Building Society Card no carry much shorter introductory incentives, although those most affected are those that are affiliated with football clubs.
Balance transfer fees have also undergone radical changes since their introduction four years ago, the research found. Consumers now pay an average of 2.79% of the balance, as opposed to 0.59% three years ago - or in monetary terms on an average balance, £52.09 instead of £11.02. Simeon Linstead of uSwitch.com said: “The credit card market is constantly evolving and even the savviest of consumers could be forgiven for not keeping pace with providers’ tactical tweaks to terms and conditions.” It seems the banks can ‘move the goalposts’ whenever they feel like it, and the consumers have to face the consequences.
According to Michelle Slade at data provider Moneyfacts, it’s the ‘behind the scenes’ tweaks to credit card criteria that is excluding the majority of consumers from qualifying for a 0% credit card deal in the first place. She says: “Whereas on the surface, the deals may look the same, companies don’t disclose qualifying criteria and this is likely to have been tightened.”
Indeed, separate research from Moneyney.com confirms that around 50% of credit card applications are now declined as the financial crisis deepens.
A further consequence can be seen in the interest rates now charged. Internet bank Egg announced it is increase the minimum interest charge on its cards from 50p to £1 from May 2008. Therefore, if you pay off your credit card in full and leave a balance of 1p, this will be ‘topped up’ to £1 which is in fact a 10,000% interest rate!
Egg recently withdrew the credit cards belonging to 161,000 customers. It claimed that the customers, who represent 7% of its 2 million credit cardholders, had a ‘higher than acceptable risk profile’. However, all of those affected do not have poor credit ratings; indeed quite the opposite was true.
A spokesperson for Egg said that the increase would only affect those customers with a balance of £70 or less on their card, less than 1% of its UK customer base.
The majority of credit card providers now have a minimum interest charge on their cards - Bank of Scotland, Egg, Halifax and Intelligent Finance all have a minimum charge of 50p. So, if you pay off all of your credit card balance in any given month, the interest charge will be increased to the 50p minimum payment. Other banks that levy the £1 charge include Barclaycard who has one of the best standard interest rates on the market of 6.8% on its Simplicity Visa card. **
In terms of what is now considered to be the criteria for a successful credit card application, it is extremely difficult to establish, as many of the lenders will not disclose on what basis they make decisions.
*Source Sky Money.com
**Source Finance Markets.co.uk.