Credit Cards Online Information

he credit card market Tis highly competitive with some very good deals available. But store cards are a notorious rip-off, unless you clear your balance each month. Most have annual percentage rates (APRs) above 25, which is some 8 to 10 per cent higher than the most expensive credit cards.

To make matters worse, the store-card trap is getting bigger. Debenhams last week wrote to account holders informing them that they can now use their cards to withdraw money from cashpoints, as well as to purchase goods from its own stores.

Sounds good, in theory. But those who make use of this offer will soon realise what a rip-off it is. Every time you withdraw cash using your Debenhams card, you will be charged pounds 1.50, which results in an APR of 32 (30 if you pay by direct debit). And cash withdrawals have no interest- free period, so even if you do clear your balance every month you will still accrue interest.

"Store cards are just a total rip-off," says Mike Naylor, senior researcher at Which?, the consumer magazine. "By all means play them at their own game by paying off your balance every month [and taking advantage of special offers]. But you shouldn't use them to borrow money on, and don't even think about taking cash out on them. There can't be any justification for having [interest] rates four or five times [higher than] the base rate."

Taking out a store card may seem attractive when you're offered 10 per cent off your first purchase and then get extra reductions during sales periods and discount vouchers. However, on closer scrutiny, the appeal of such offers declines. Quite often customers find their vouchers aren't used because, in order to get the 15 per cent discount, you have to spend at least pounds 100. Or the day when you can get an extra 15 per cent off is a Thursday, when you might not be able to get to the shops because you're working. When these factors, along with high APRs, are taken into account, one wonders why store cards are so popular.

A survey carried out by market researcher Mintel has revealed that there are 20 million store cards in existence in the UK - up from eight million in 1992. Of those people surveyed, 18 per cent - which represents a store- card-owning population of nearly nine million adults - had a store card. More worrying is that fewer than four in 10 people clear their balances every month. So even though only 31 per cent of store-card holders know what the APR on their card is, many of them are paying high amounts of interest.

This apathy is just what retailers want. Often customers don't even realise that rates may have been increased. Debenhams' letter to its account holders made no mention of the charges for withdrawing money with an account card; these details were confined to the accompanying leaflet and, chances are, a lot of people won't bother reading it.

Withdrawing money on any credit card, not just a store card, should be avoided unless it's an emergency. The APR is always higher when you're borrowing than when you're making a purchase, and you start accruing interest from the moment the cash is withdrawn. For example, Egg, which has an introductory offer of 0 per cent on balance transfers and a standard APR of 11.9, charges customers 14.2 per cent for cash withdrawals.

Research from People's Bank reveals that interest payments on outstanding store-card balances are costing UK consumers over pounds 400m more than if they were to switch to a credit card with a low APR. (See table below.)

"The 32 per cent [charged by Debenhams to customers who use their card to withdraw cash] is another prime example of why not to borrow money on a store card," says Shakila Ahmed at People's Bank. "Store cards look very attractive ... [but] consumers should check what the APR rates are, and if they cannot afford to pay the balance off in full, they should shop around for a low-rate credit card."

# posted by Medical Information : 3:22 AM