Banks have hiked lending charges on more than 100 in the last two months alone, but there’s no need to worry.
In fact, customers shopping for new plastic have never had it so good. Granted it may not seem like it at first – research by Moneyfacts says lenders have responded to the credit crunch by announcing no less than 125 fee and rate hikes, pertaining to foreign usage, balance transfers and cash withdrawals (see the full list here.)
Obviously we’re not saying this is good news, but provided you have a good credit rating, these changes needn’t affect you at all. Here’s why:
Compare balance transfer deals here
Reason #1: Best deals still available
If you were looking for a credit card offering an introductory interest free period last year, the longest deal you would have found was 12 months.
Now you can get 15 months interest free on balance transfers and new purchases with the Virgin Mastercard and Halifax Purchase cards. And there are a host of other examples to show that the best deals are still on offer, despite the aforementioned spate of fee hikes.
Savvy readers may point to the American Express Platinum Moneyback Card as an exception to this rule. It offers 5% cashback on all purchases in the first three months and is certainly a leader in this category, but AmEx has recently hiked the APR from 15.9% to an eye-watering 18.9%.
The important thing to remember with cashback cards is that you should never, ever go for one unless you are absolutely certain you can pay off your debt in full every month.
This is because the high APR’s will more than undo any savings made from the cashback offer. So for those who do choose such a card, what it means is that the APR is essentially irrelevant, because you will never need to pay interest on it. Read more about cashback deals here.
Don’t pay interest on Christmas purchases
Reason #2: Fee hikes avoidable
Of course there’s a reason why most lenders haven’t meddled with their headline rates. Savvy businesses that they are, banks know that most people will make their decision based purely on these rates. Thus they have buried the vast majority of the new charges in the terms and conditions instead.
While this may be sneaky, savvy customers can avoid these fees by reading the fine print thoroughly while shopping around for the right product.
For example, AA Mastercard is one of 18 to hike its charge for using the card while abroad, up from 2.75% to 2.95%. The card also has a 15.9% APR, offers nine months interest free on transfer (with a 3% fee) and three months on purchases.
The Post Office credit card offers almost exactly the same perks, but won’t charge you for foreign transactions, and has a slightly lower transfer fee of 2.75% too.
Compare balance transfer deals here
Reason #3: Always been terrible value
Of the 125 credit card fee hikes announced in the last two months, 94 of them pertain to cash withdrawals.
But withdrawing money has always been one of the worst, and most expensive, mistakes to make. Not only are you charged a fee for doing so, but the debt earns interest at nearly twice the normal rate, and is always the last debt paid off thanks to the way lenders’ hierarchy of payments.
The fact that banks have now made this terrible idea slightly worse should not make a jot of difference to you, as you should have been avoiding like the plague already.
Don’t pay interest on Christmas purchases
But there could be bad news
For those who aren’t looking for a new credit card, you should contact your lender to ensure your card is still the most suitable one for your needs.
As we mentioned at the start, fees have been hiked in reaction to the credit crunch, which has made lenders decidedly nervous about whom they loan money to. As a result, the number of applications refused by card providers has risen by 17% to an estimated 3.27 million in the past six months.
This could have significant consequences to those with a less than exemplary credit history, who are more likely to be rejected outright or given an uncompetitive deal.
Read more about credit ratings and how to improve yours here.
Get a free credit report check with Experian today
