Credit Cards Online Information

After years of vicious price wars in the credit card market, lenders are becoming increasingly nervous as the cost of special offers rises and bad debts mount up. Barclaycard, the country's biggest lender, this week revealed a 19 per cent drop in its annual profits.

However, while there can be no doubt that an increasing number of credit card providers are desperate to boost their revenues, don't expect them to publicly admit to charging higher prices or raising their interest rates.

Instead, borrowers need to look out for the sneaky tricks that more and more companies are using to extract extra cash from their customers.

WHICH RATE ARE YOU REALLY BEING CHARGED?

The credit cards with the lowest interest rates are the cheapest, right? Think again - the true amount of interest you will pay on credit card debt depends on factors such as when your provider starts and stops charging interest and how longyour purchases remain interest-free.

Some providers, such as Halifax, begin charging interest from the moment you carry out a transaction, while others wait until the money is actually added to your card several days later

Most lenders offer an interest-free period on all purchases, but this can vary from a few days to almost two months. A short interest- free period means you're more likely to get caught out and end up paying interest on balances you were hoping to pay off in full. In fact, due to the different ways lenders calculate interest, it is possible for a card with a headline rate of 22 per cent to be cheaper than a card that charges only 12 per cent.

ORDER OF REPAYMENTS

Another trick that will ratchet up your interest charges is the order in which your lender allocates your repayments to your card balance. HSBC and Nationwide Building Society ensure any payments are used to clear the highest interest-bearing debt on your card, but most providers do the opposite. So, for example, if your lender offers 0 per cent interest on balances transferred from another card, but charges interest on new spending, your repayments will go towards reducing the latter first.

MINIMUM REPAYMENTS

Many lenders now allow customers to make minimum repayments of just 2 per cent of their balance each month. If you pay the minimum, however, you will barely pay down any more than the interest charges each month. A borrower making the minimum repayments each month, will take 32 years to repay the average credit card debt.

PENALTY FEES

There's nothing lenders like more than customers busting their credit limits or forgetting to make a payment on time. Penalties can be as high as pounds 35, and the nastiest providers will charge once when you bust your limit, and then again for each transaction once you have passed it. Appeal if you feel hard done by, as lenders can often be persuaded to withdraw charges if you kick up a fuss.

BALANCE TRANSFERS

Interest-free balance transfers have been popular in the credit card market over the past five years, with the best offers promising as long as 18-months interest-free. But over the past year, lenders have begun charging fees of up to 3 per cent on such deals, typically capped at around pounds 35 or pounds 50. There are still a few fee-free deals left, such as the current offer from the Post Office, but these are quickly evaporating.

TOUGHER TERMS

People who pay of f their balances in full every month

are credit card companies' worst nightmares - the lenders never make money out of them. Some lenders scrutinise their prudent customers all the more closely, in the hope of earning at least some revenue.

OVERSEAS CHARGES

All providers, with the exception of Nationwide, levy a charge each time you use your card abroad - often as much as 2.75 per cent of the value of each transaction. Some providers also give their customers unfavourable exchange rates on their purchases.

CASH WITHDRAWALS

Charges for drawing cash on your credit card are typically 2 per cent, with a minimum fee of pounds 2 a go. You may also be charged a higher interest rate on cash withdrawals.

CREDIT CARD CHEQUES

Although consumer groups such as the National Consumer Council have been calling for a ban on unsolicited credit card cheques, some lenders still send them to their customers. The penalty for using these so-called "convenience cheques" is that they usually come with a higher rate of interest attached than normal card spending, a shorter interest-free period, as well as lesser levels of consumer protection.

PAYMENT INSURANCE

Once you're signed up with a credit card provider, you're sure to receive a call from one of their salesmen, keen to scare you into buying payment protection insurance. PPI policies are meant to cover your credit card repayments in the event that you fall ill or lose your job, but often come with an onerous set of terms and conditions.

Consumer groups warn that many PPI policies are not worth the paper they're written on when policy-holders try to claim.