Emails from people who have fallen foul of the 'late payment scam’ flooded in when we flagged it up. Now Barclays are in the frame as well as Virgin credit card and MBNA. In fact I would be willing to bet that every provider out there is up to the same trick.
Don’t get me wrong - they are within their rights to withdraw an introductory rate if you miss a payment. What has got our readers so angry is that they were able and willing to pay their minimum payment on the Virgin credit card and many others.
Most had set up direct debit arrangements at the time they took their cards out. The problem was that the DD payment date was after their first credit card payment was due. Of course, this was not pointed out to them and the first payment was missed.
Compare balance transfers credit cards
Complain and complain... and then switch again
So set up a direct debit but also check with the credit card company that it will come into force before your statement date. If it doesn’t simply make a manual payment before then.
If you get caught out complain like mad. One reader reported success with getting Virgin credit card to change their minds about withdrawing the introductory rate and even got them to refund the fee. But, she was in the minority. If you can’t get the company to let you off then immediately apply for another card and switch as soon as you are able. Don’t put up with this when you don’t have to.
These companies must factor this trap into their business models. I wonder what percentage of new credit card customers get caught out. Somewhere in the bowels of the each card company’s head office there’s probably a bespectacled bean counter working out exactly how many new customers a company can expect to attract with a special offer and then immediately stitch up by putting them on the top interest tariff.
Compare balance transfers credit cards
Here are the other five credit card rip-offs to watch out for.
Stitch-up #1: The Balance Transfer Fee
Not all 0% deals are created equal, most now come with a balance transfer fee attached. And, just recently, the cost of transferring a balance has gone up. Instead of paying a 2% balance transfer fee capped at, say, £50, you could now end up paying 3% with no cap (£150 on a balance of £5,000).
But if your balance is around £2,000 or less then don’t worry so much about this. Swallowing a £40 transfer fee (at 2%) and still saving £278 in a year on a £2,000 balance with the MBNA Amex Rewards card is worth doing - even if you have pay interest on the fee. If your balance is, say, £5,000 then look for a card with the lowesttransfer fee and work out the costs first to avoid surprises.
Compare balance transfers credit cards
Stitch-up #2: Kiss your new rate goodbye
This next trap can be really expensive. Once you have applied for your card and your account has been opened you MUST do two things. The first is to set up a direct debit for at least the minimum payment (preferably more). The second is to check with the card company that your new direct debit will be set up and operational in time to make your first payment.
If you miss your first payment you will now be charged at least £12. But you may well also have your introductory rate withdrawn - without being informed. If this happens complain vociferously but politely. If they won’t refund the fee and put you back on the 0% rate then transfer immediately.
If you fall for this trick the card company gets the balance transfer fee which could be £150 or more, the late payment fee of £12 and the full rate of interest on your debt for a month or two which could be £140 (on £5,000 at 16.9%). Make sure you ask the question, "Will my direct debt cover my first payment?"
Compare balance transfers credit cards
Stitch-up #3: Paying the full rate of interest
This is the most obvious trick of them all. In order for this to work the card companies rely on customer inertia. If you are paying more than 5%-10% interest on your credit card then you have fallen prey to the oldest trick in the book. Congratulations.
If you don’t know how much you are paying then take a look at your statement or ring the firm. There is no reason someone with an average or better credit rating should have to pay any interest at all on a credit card debt these days.
If you can’t be bothered to switch your balance to one of the cards charging 0% on balance transfers for up to 12 months then simply choose a deal that offers a low rate on purchases and balance transfers, e.g. the Barclays Simplicity card which charges 6.8% (variable).
Compare low rate credit cards
Stitch-up #4: Don’t suffer a holiday mugging
According to a recent survey some 69% of us use our credit cards while abroad and that 67% of us did not know what the charges were for doing so. This can be a costly mistake. The average extra charge for using a credit card abroad is 2.75%. This adds up to almost £30 extra on a spend of £1,000, which is not difficult to achieve on a family holiday.
It gets even more expensive if you use your card to withdraw cash abroad as you will then be charged an additional cash withdrawal fee - normally around 2%. Add the two fees together and it could cost you almost £50 per £1000 withdrawn abroad. If you think this is OK, remember that you will be paying more interest on cash withdrawals than you do on either new purchases and balance transfers - in some cases as much as 20% more.
The simple way to avoid this is to use the Nationwide Classic card. It has no foreign exchange charges and still gives 0% interest on new purchases for six months.
Compare new purchases credit cards
Stitch-up #5: The eternal debt: the cash advance rip-off
Even if you only get a cash advance in the UK, rather than abroad, you are still leaving yourself open to the last of my five worst credit card rip-offs. Not only will you normally pay the handling charge of 2% or so and pay a far higher rate of interest on any money withdrawn from a credit card (20% more) but you are very likely to end up paying that high rate of interest for far longer than you think.
This is because the credit card provider decides which bit of the money you owe is paid off first. With most providers, you first pay off any balance you have transferred to your new card, then any subsequent purchases you make. Only when all of that is paid off do you even begin to pay off any cash withdrawals you have made. So, you can easily end up paying 20%+ interest on your cash advances throughout during a 12 month 0% introductory period for transfers and new purchases.
