Many people struggling to finance Christmas, or who want to earn some reward points on their festive shopping, will be thinking about applying for a credit card in the coming weeks.
But experts have warned borrowers to exercise caution when searching for a deal. David Black, of Defaqto, the financial information website, says: “The best credit cards are available only to those with the best credit histories so do your research before applying. Otherwise you could end up being rejected and making multiple applications, which will harm your credit rating.”
Several lenders have stopped offering credit cards for new customers recently: NatWest, RBS and HSBC give credit cards only to current account customers, while Santander’s brands, Abbey, Bradford & Bingley and Alliance & Leicester, say that “lending continues to focus on existing customers”.
If you are thinking about applying for a new credit card, here’s how to secure the best deal.
Check your credit record
Advertisement
First, check your credit record with one of the three credit reference agencies — Equifax, Experian or Callcredit — as this is what lenders use to choose their customers. It costs £2 and the record will be posted in a few days.
James Jones, of Experian, says: “Each has its own selection criteria. However, a ‘good’ credit record will mean that you have no defaults or late payments; you are not already exposed to too much credit; you have not made multiple applications for credit recently; and you are not financially linked to someone with a poor credit history. It also helps if you are on the electoral roll and have lived at the same address for several years.”
If there is anything negative on your record — perhaps you were unemployed for a few months but now have a secure job — you can attach a 200-word explanation for lenders. Missed or late payments generally stay on credit records for six years, although Mr Jones says lenders are more interested in your most recent financial history. If you spot errors, contact the lender.
You are also likely to be rejected if you have never had credit in the UK. This means it can be detrimental if, for example, you save up for a car rather than buy it on hire purchase. If you have a poor rating, applying for the best-buy credit cards is likely to damage your record further, as it could lead to multiple rejections. Once you have assessed your credit record, you can decide whether it is worth applying for the best deals. Here are the best deals for each different type of card.
0 per cent on purchases
Advertisement
Michelle Slade, of Moneyfacts.co.uk, the comparison site, says: “If you need credit to fund Christmas, opt for a card with a 0 per cent deal on pur-chases. The Tesco Clubcard Mastercard has 0 per cent on purchases for 12 months, giving you up to a year to repay the debt. It also offers 0 per cent on balance transfers for six months and five Clubcard points for every £4 you spend at Tesco, and one point for every £4 you spend elsewhere. It’s a good all-round card.”
The Sainsbury’s Finance MasterCard and the Marks & Spencer Money MasterCard offer 0 per cent on purchases for ten months and have APRs of 15.9 per cent thereafter. “Just make sure that you pay off the balance in full before the 0 per cent deal ends,” Ms Slade advises.
Transfer old debts
If you have debt on a credit card that is accruing interest, you may wish to transfer it to a card with a 0 per cent balance transfer deal. Remember, however, that most cards now have a balance transfer fee of 3 per cent — so if you wanted to transfer £1,000, it would cost you £30.
The best card is the Virgin Money Mastercard, which offers 0 per cent for 16 months. BT Visa and Nationwide’s Classic Visa both offer 0 per cent for 13 months. Joanne Garcia, of Confused.com, the comparison site, says: “Try to pay off as much as possible each month rather than the minimum, to avoid reverting to the standard interest rate at the end of the offer period or paying another 3 per cent to transfer again.”
Advertisement
If you don’t need credit...
If you do not necessarily need credit, consider opting for a card that will reward your Christmas spending. The British Airways American Express card, for example, offers one BA mile for every £1 spent and customers can collect 1,000 bonus miles if they spend £500 in the first three months.
The John Lewis and Waitrose MasterCard earns customers one point for every £1 spent in store, or for every £2 spent elsewhere. A voucher for £5 is issued for every 500 points.
The American Express Platinum cash-back credit card earns customers 5 per cent cash back for the first three months (up to a maximum of £100) and up to 1.25 per cent cash back thereafter, but fewer retailers accept it.
Case study: Festive helper
Advertisement
Caroline Martin, 43, from Edinburgh, is using a Tesco Clubcard credit card for her Christmas shopping.
She wants to build up Airmiles to take her family — her husband, Paul, and their children Rory, 13, Finlay, 11, and Struan, 6 — on holiday.
“The card has 0 per cent on balance transfers and purchases for 12 months,” she says.
Options for those with poor credit history
The good news for borrowers with poor credit records is that several lenders offer cards targeted specifically targeted at “sub-prime” customers. The bad news is that these invariably offer much higher APRs — about 35 per cent — lower credit limits and higher monthly repayments of up to 5 per cent.
Advertisement
The two main players in this market are Aqua and Vanquis, although the latter can offer APRs as high as 59.9 per cent, depending on individual circumstances. David Black, of Defaqto, says: “If the cardholder operates the card well with regular repayments, he or she may be able to get their credit limit increased, their interest rate reduced or may qualify for a more mainstream card.”
The Capital One Classic card and the Barclaycard Initial Credit Card are aimed at borrowers with a patchy credit history; the latter has the lower interest rate, at 27.9 per cent.