Ten steps to a top credit card

As credit card companies increasingly work harder and harder to try and secure your custom, independent comparison website Moneyfacts.co.uk has produced a list of things to look out for to make sure you get the best deal available.

With interest free balance transfers, cashback offers, bonus points, and low lifetime balance deals enticing people in, there are large benefits to changing cards.

Many banks and building societies have measures in the fine print to make sure they can still make money out cards with attractive headline offers.

But this is no reason to give up on a better deal - as with a modicum of caution customers can take advantage of the offers available without being stung by unexpected charges.

To help people achieve their goals Moneyfacts has produced a list of things to watch out for when applying for a new credit card to avoid pitfalls and get the best deal on the market.

Balance Transfers
Fees

• Until recently credit card providers were clambering for transfers to attract new customers. Now that customers are taking full advantage of the zero per cent deals and moving on swiftly to the next card, a number of providers have taken to charging two per cent per transaction.
  Order of Repayments
  
• Most cards order their repayments so you will always pay off the most expensive transactions last. If you make a zero per cent balance transfer then spend on the same card which accrues interest, your repayments will pay off your zero per cent deal first, leaving the interest on your purchases to build up. However, some lenders, such as HSBC and First Direct and Nationwide are the good guys here as they apply your repayments to the most expensive debt first.
  Balance Transfer Dates
  
• Not all cards start the clock ticking on balance transfer deals from the same date - some will apply from the date the card is issued, some from the date of the first transfer. To get the longest term go for a card deal that waits until the money hits your new account. Also make a note in your diary at least a month before the expiry date of your zero per cent deal as you may need to take out a new card or personal loan to repay any balance still outstanding.

Interest Free Days

• These are the maximum number of days you are allowed before you pay interest on your transactions. Check that your card offers interest free days, especially if you always pay your balance off in full. There are some cards that will charge you interest from the card transaction date even if you do pay in full.

Cash Interest Rates

• Many cards that offer low rates on purchases may charge you much higher rates on cash. Using your credit card to withdraw cash can prove expensive, as you will be charged a withdrawal fee as well as the potentially higher rate of interest.

Charges
Cash Withdrawal Fees

• In addition to the higher rates, cash withdrawals also incur a charge of around two per cent with a minimum of £2. As this charge is levied for each transaction, ensure you are using your card effectively by not making lots of small withdrawals.
  Penalty Fees
  
• If you pay late, go over your limit or one of your direct debits/cheques is unpaid then most providers will charge you between £20 and £25. Some card providers have now amended their small print, which allows them to terminate your preferential rate deal and put you on a more expensive deal if you are late with a monthly payment.

Repayments
Minimum Repayments

• The minimum amount that the lender requires to be repaid each month can vary between two per cent and fiver per cent. Beware, if you only two pay per cent of your outstanding balance each month, you will barely cover your interest charges and it will take you years to pay off your balance.
  Direct Debits
  
• Direct debits are a great way to ensure that you avoid the late payment fees. A lot of lenders only allow direct debit payments for the minimum amount or the full amount, whereas others will let you specify a percentage of your balance or a fixed monthly amount. To shorten the term, plump for a card that will allow a fixed percentage or amount to clear your debt early. £1,000 on a card charging 12.9 per cent would take 17 years and four months to pay off if just the minimum payment of two per cent was made, but only one year and 11 months if £50 was paid off each month.

Payment Protection Insurance

• Many cards offer payment protection which will pay a percentage of your bill in the event of you being unable to work as a result of accident, sickness or redundancy (or any combination). If you do take out the insurance, check you are eligible for the benefits and also that it is worth the cost. It costs around 78p per £100 of your outstanding balance, so if you owe £2,000 you will have to pay a premium of £15.60 a month, which may, depending on your circumstances, be better spent reducing your debt.