New Year's credit card

After pre-Christmas sales got shoppers out onto the high street, the new year is set to bring some big credit card bills.

Getting hold of a new credit card deal to transfer balances could be hard for the coming year, but there are still 0% balance transfer deals out there.

Virgin Money, Tesco Personal Finance, HSBC, Egg and Nationwide all offer 0% deals running over 12 months – but with balance transfer fees between 2.50 per cent and 3.00 per cent.

Credit card borrowing gets harder

The latest report from the Bank of England into how much business lenders are planning shows firms are reducing their amount of unsecured lending.

Credit scoring criteria for credit cards are also tightening – meaning only those with the best credit records and most likely to be profitable for lenders are getting approved.

Also the Bank of England reports those who are being accepted are seeing their credit limits chopped.

The coming months are only set to see this pattern continue.

Capital One has already pulled out of the 0% market along with Mint and Royal Bank of Scotland, and Brad King, managing director of Compareandsave.com, warns more firms could follow.

"Zero per cent deals could dry up in coming months," he explains, pointing to a number of firms that are looking at finding new ways to keeping profitable clients.

"However, there are still some good deals out there lasting up to 16 months.

"But you have to bear in mind the admin and transfer fees."

The fall in credit card lending is being tied to the poor state of the economy – with consumers increasingly unwilling to rack up their debts and lenders wary of increased defaults and losses.

"People across the UK, and across the globe are looking to save rather than spending," says Grant Bather at Virgin Money.

He adds after Virgin Money's most successful year, the firm was "optimistic, but realistic" about lending levels for the coming year.

Lenders remain tight-lipped over whether they are reducing their lending – stating they review each credit card application on a case-by-case basis.

"Our credit scoring is unchanged. We look at individual cases," said Mr Bather.

Rising interest rates

As credit cards could be harder to get, rates are rising.

Credit card purchase rates have risen from 16.77 per cent to 17.48 per cent, while the credit card cash transaction rate is up from 23.88 per cent to 25.29 per cent, according to Moneynet.co.uk.

However, as 0% balance transfer deals disappear, other options do exist.

"New cards are available offering fixed rates for the life of a balance," says Mr King.

But he explains, although the rates on some cards better than some personal loans, people have to weigh up the benefits of fixing a rate over a few years over the chance of interest rates dropping – just as they would with a variable rate or fixed rate mortgage.

Also – as with 0% transfer deals – after the fixed term people have to think about whether there will be any fixed deals left on the market.

They key – and the advice many people are now taking as the economy slows and lending freezes up – is to take advantage of a credit card transfer not just to hold down interest costs but to clear the debt.

Making minimum payments – even if the transfer rate is zero – means extending the life of your credit card debt.

The era of rate tarts now seems to be over as the UK looks to clear its debts.

Daniel Barnes