Steve Willey, Head of Cards
The credit crunch has been a borrower's nightmare as lenders squeeze mortgage and loan rates to secure their finances. However, every cloud has a silver lining.
Kevin Mountford, head of savings at moneysupermarket.com, highlighted how savers are reaping the rewards of the credit crunch but there has also been some good news for borrowers - finally.
The credit card market has burst into life in recent weeks and competition in the balance transfer market has reached boiling point with providers seeking 'high quality' business. If you have a good credit score, now is the ideal time to take advantage of this competitive environment.
What new credit card deals are available?
The deal that has caught the headlines in recent weeks is the Abbey Zero Card. This isn't a market leader for balance transfers or purchases in terms of the length of the interest-free period or the standard rate of interest that is charged thereafter - so what makes the deal so attractive?
The key to the Abbey Zero Card is its simplicity. It offers 0% for six months on both balance transfers and purchases, but crucially there is no balance transfer fee. A card that doesn't charge for moving a balance on to it is becoming harder to come by - in fact, there are only seven credit cards on the market with a 0% balance transfer offer and no balance transfer fee.
Abbey Zero also has no charges for cash withdrawals and no foreign exchange fees making this one of the 'cleanest' cards around. Be aware though: while Abbey will not charge you for using the card to make a cash withdrawal, you may incur a charge from the ATM provider.
After the introductory six-month period, cardholders will be charged 18.9% on purchases and 25.9% on cash advances. However, the fee-free service continues indefinitely.
Crucially, the Abbey Zero Card offers the same six-month deal on both purchases and transfers which helps users avoid slipping into the 'payment hierarchy trap'. For more information about this, read 'The interest-free credit cards that may charge you interest'.
If you have larger debts however, you should look for a card with a longer 0% balance transfer period. Currently, the market leader is the Virgin Credit Card which offers 0% on balance transfers for 15 months with a 2.98% balance transfer fee and a typical interest rate of 15.9%. This gives its users the maximum time to chip away at their balance. However, do be aware that the 0% purchase period lasts only for three months and like most providers, Virgin clears the cheapest debt first so you should use a second card for spending (click here for more detail on payment hierarchy).
Virgin's offering isn't the only lengthy 0% balance transfer deal on the market. The Egg Card includes 0% on balance transfers until August 1 2009 but with a slightly higher balance transfer fee of 3%. As with the Virgin card, this card shouldn't be used for spending as well, because the interest-free period on purchases runs only until August this year.
Another good option is the Barclaycard Platinum, with 0% on balance transfers for 14 months and 0% on purchases for three months. The balance transfer fee on this card is 2.9% and once the interest-free period has ended you will be charged a typical rate of interest of 14.9%.
Moneysupermarket also has an exclusive deal with Capital One which offers 0% on balance transfers until July 1 2009 with a 3% fee. Again, this card should not be used for dual purposes as the interest free period on purchases ends in November 2008. However, the standard rate of interest is lower than average at 13.9% so you won't be as heavily penalised if you do spend on the card and incur interest.
However, if you don't want a separate card for purchases, look for a deal that offers the same interest-free period for balance transfers and purchases. The Capital One Platinum Mastercard is one of the market leaders with 0% on both balance transfers and purchases until March 1 next year and the standard rate of interest you will be charged thereafter is well below average at 9.9%. If you do make a balance transfer, you will be charged a 3% fee.
What if my credit score isn't great?
The credit card sector has been affected in a similar manner to the loans and mortgages market as lending criteria has tightened and it is more difficult for users with less than perfect credit scores to pick up good deals: Lenders are turning down around 20% more card applications than they were before the onset of this financial crisis.
However, while this doesn't help your task of finding a good credit card deal, there are still products available.
To increase your chances of acceptance look at ways to improve your credit score before you apply. Close down any credit card accounts you no longer need, set up direct debits to ensure you meet monthly repayments and check your credit profile for any errors.
Crucially however, you should not apply for the leading card deals knowing in advance you are unlikely to be accepted for them as rejections will only further harm your credit score. Our Smart Search tool asks a brief series of questions to make an assessment of your credit score and then returns results based on deals you're likely to qualify for. It's the safest way to get yourself a credit card and as long as you meet your repayments, you should be better placed in the future to secure one of the market leading deals.
Have your say: Is the credit crunch having a direct impact on you? Maybe you're struggling to get a credit card or have been offered a much lower limit than you were expecting. Whatever your experience, visit our community forum and let us know about it.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.
Relevant Links
