If you use one of the top credit cards properly then they can make your financial transactions more secure, they can save you a lot of money, and they can even make you money. However, there's an awful lot to understand in the small print.
To demonstrate this I've gone through the small print of six leading card providers: MBNA, Virgin, Lloyds TSB, Halifax, Bank of Scotland and Tesco. And there were some tricks that they were guilty of.
0% deals can be withdrawn
With five of the card providers' contracts, 0% deals and other promotional rates can be withdrawn if you miss a payment or go over your credit limit, or, in some cases, otherwise breach your contract.
The exception was Tesco, which writes: "We will not change a fixed or special offer rate on an account for as long as we have agreed to keep it fixed," with no get-out clause in case you breach your contract. But, as you'll see soon, there are other ways it could limit your use of 0% deals if you fall into difficulties.
Halifax explicitly states that you might get a shorter 0% deal than the advertised one, although half of accepted applicants should get the full deals, the rest can expect less. Tesco explicitly states that everyone who is accepted will get the full 0% deals.
I saw no small print from the other four stating whether you could be offered a shorter deal. If they do, I think there's a chance you could complain to the free Financial Ombudsman Service. Read How to complain to the Financial Ombudsman Service.
A small number will get the advertised rates
With all six of these cards, less than half of applicants get the advertised rate, because more than half are either rejected outright or offered a higher rate.
However, even the advertised rates are extortionate. No sane person who understands maths and debt should willingly build up their debts to the level that they have no choice but to pay the hideous rates of APR that you get after 0% card deals expire.
Negative order of repayments
Credit cards separate your debts into balance transfers, purchases, and cash transactions (such as cash withdrawals) and they offer different deals and interest rates on each.
It used to be that customers' repayments would go to pay off the cheapest debts first, so that the most expensive ones sit on the card longer attracting more interest. This has largely been nipped in the bud after consumer groups and the Government put considerable pressure on lenders.
However, all six of these card providers have found different ways to potentially charge you more.
When you have dual 0% deals on balance transfers and purchases, and you use both sections, you could end up paying interest unexpectedly.
With Virgin and MBNA, let's say you have 20 months at 0% for balance transfers and six months at 0% for purchases. With the interest rates equal at 0%, Virgin and MBNA will usually pay off the type of transaction that has the highest revert-to rate after the 0% deals expire. The balance-transfer revert-to rate is normally ever-so-slightly higher (and cynically it has been since just around the time it introduced this bit of small print), so during the dual 0% deals it will allocate payments to your balance transfers.
Now let's say you do a £5,000 balance transfer when opening the account and then make a £600 purchase, and you start paying off £100 per month. After six months, you've paid off £600 of the balance transfer, but all £600 of the purchase is stuck on your card. Although Virgin and MBNA will prioritise your purchase, you will now pay interest until it is clear.
Halifax, Lloyds and Bank of Scotland customers will normally see their repayments allocated to purchases before balance transfers when they have two deals at 0%. Since purchase deals are usually shorter than balance transfers, this should work out ok for most customers. However, when their cards offer a longer purchase deal (at introduction or on the anniversary), you could find your 0% balance transfer is not paid off first as you'd like, and you start paying interest sooner than you'd expect.
Tesco has a completely different way to catch you out. The Tesco Buy Now Pay Later deals are paid off after you have paid everything else off, which means it could potentially be stuck on your account long after any 0% purchases deal has expired if you have a large balance transfer to pay off first.
Miniscule minimum repayments
Five of the card providers charge just 1% of the balance plus interest and charges each month. It's no wonder that so many people, with their wants and desires, cannot resist making tiny repayments. As a result they drag out and build up their debts until some emergency brings them – too late – to their senses.
The sixth provider, Tesco, makes you pay the same or even less if you use its Tesco Buy Now, Pay Later offers. Insane.
Snowballing debt made easy
All six make it very easy for those living on a tight budget to fall into a debt spiral. If you're fined for breach of contract, you must pay the fine off the next month, along with all the normal interest and 1% of the balance, or you'll receive another fine. These can easily add up, in the space of a few months, so that you can't ever expect to pay off your debt.
Anyone living so close to default should seriously consider paying down their debts while they have a chance. You should not be borrowing for fun things: it will only mean you can afford fewer fun things over the course of your life. Read Spend less and have more.
Your savings accounts can be raided
If you miss payments with Lloyds, Bank of Scotland and Halifax, as with most banks, they can raid your current accounts and savings accounts to pay your credit card bills and arrears. It's common for people in serious debt to open separate accounts before defaulting, and debt charities recommend that they do so, so that they have money to live on.
Payment date can be changed
Lloyds, Bank of Scotland and Halifax explicitly state that they can change your payment or statement dates merely in a note in your statement. Some people have reported falling foul of such changes, since they have accidentally not paid on time having missed the short explanation on the statement – and been fined and had a bad mark on their credit records.
The banks' small print directly states that they can do what good credit card customers have previously complained about: "For example, we may reduce the number of days between the statement date and the payment date if you always pay off your balance in full."
I can't think of any benevolent reason for them to go to that effort. If this happens to you and you suffer financially, consider complaining to the Ombudsman.
Some purchases are charged as cash withdrawals
With all six card providers, if you buy foreign currency, travellers' cheques, gaming chips or gift cards, or if you make money orders or pay for wagers, the transaction will be charged as cash advance or cash withdrawal. This means you will be charged interest immediately at an incredibly high rate, with no interest-free period, and you'll be charged a high fee on top.
You could lose your home
All six card providers state – some more clearly than others – that they can get a "charging order" on properties in England and Wales, and sometimes Scotland, if you fall behind on repayments. This means that, whenever you sell your home, the provider gets to take its loan, interest and charges from the sale amount before you get the difference. So much for credit cards being "unsecured" on homes.
After getting a charging order, all these companies can, in some very limited circumstances, even force you to sell your home. That's much harder for them to do though.
For more read Banks turning unsecured loans into secured ones.
You're always responsible
Virgin and MBNA state that if you don't receive their email or SMS alert that your statement is ready, or if you can't access your statement, you're still responsible for paying. It doesn't matter what the reason is, apparently, even if it's their fault.
I think the Ombudsman might have something to say about that, but it'd be a huge faff to correct your credit report, so you should set your own monthly reminders to pay your bills.
If you need to check your credit record, you can get a free trial with Experian through Lovemoney.
No warning of 0% deals expiring
Halifax shows how important it is for you to set a reminder in advance of the 0% deals ending, since it will only notify you when the deal ends, and with what seems to be a token notice in your statement. The other five don't mention what notice they'll give you at all, if any.
Set yourself your own advanced reminder to pay off your card, or to compare and switch before the deal ends.
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