Credit Card Introductory Offers

It’s not difficult to get confused by the massive number of potential introductory offers that are thrown about by credit card companies. How do you know which one is for you?

Here’s an explanation of six of the most common introductory offers, and how they work:

Low Balance Transfer Rates
It’s fairly common now to find introductory offers that include balance transfer rates much lower than the standard – often zero percent – for a period of six months or so. While this may sound like a great deal, it’s important to remember that this period will not last forever, and you may find that the standard rate is higher than it is for the card you’re currently holding; in short, it’s possible to lose money by making the switch if you get caught unawares. This can work out to a considerable saving if you plan on clearing your card debt during the introductory period, but may cost you more in the long run.

Low Interest Rates
As is the case with balance transfer rates, many institutions offer a period of lowered interest rates on new purchases in order to bring new customers in. This is usually for six months (although it’s possible to find cards that offer a longer introductory period), and can be as low as zero percent. Once again, however, it’s important to note that this is only a temporary offer, and the standard APR of the card after this period may be relatively high.

Cashback
If the credit card in question offers a cashback service, you’ll be reimbursed a small amount (usually 0.5-1%) on every transaction you make on it. While this might not sound like much, it can soon add up – and if you pay off your account fully every month anyway, it amounts to a small discount on everything you buy, as you wouldn’t be liable for any interest rates (due to the fact that there’s no remaining balance).

Positive Repayment Order
This doesn’t tend to be a common selling point, but is quickly becoming a popular choice for consumers. While many credit cards arrange your repayments so that they pay for the most recent purchases first, positive repayment ordered cards redirect the bulk of your payments to clearing the debt on your most expensive purchases. In theory, this helps to spread the wealth around, and thus clear your debt faster.

Purchase Protection
Some lenders offer insurance on items bought on the card for up to 90 days after purchase, which can be very useful should something go wrong with an expensive buy you don’t have a warranty for.

Fraud Protection
A lot of cards offer you protection against purchases made on your card, should they prove to be the result of identity theft. However, beware of cards that say you only have to pay the first £50 of any fraudulent usage in your name; they’re only giving you what you already have under the Consumer Credit Act anyway.

Remember: as useful as credit cards can be, they can also end up becoming a fast-track to financial difficulty if used irresponsibly or excessively. However, if you spend wisely (and make sure you both know and stick to your budget), you should be fine.

Finding the right credit card for you

Of course, the vast majority of people have at least one credit card and many have more than one. They are convenient, safe to use and, for some transactions, essential (try renting a hire car without a credit card, for example). But how many card-holders have given serious thought to the particular card or cards that they use. What are the principal considerations in finding the right credit card for you?

As is so often the case, it all depends. It all depends on your particular circumstances and the way in which you intend to use the card. But even in these days of post-credit crunch, the competition amongst card providers is sufficiently intense that, whatever you lifestyle and whatever your spending habits there is almost certain to be a choice between some credit cards that will suit you better than others.

For example, if you use your card often, but rarely manage to clear the outstanding balance each month the most critical consideration is likely to be the interest rate charged on that remaining balance. Different cards apply different rates, of course, but these are most conveniently expressed as the annual percentage rate (or simply APR) for ease of comparison. It is also worth bearing in mind that different rates of interest are also likely to apply to purchases, cash withdrawals and use of the card overseas.

If the outstanding balance on a credit card is one that has accumulated as a result of past spending, there is still a large choice of cards offering zero percent interest on balance transfers for up to a year. By transferring an outstanding balance to a new card with such an introductory offer, therefore, it is possible to prevent further interest accumulating while the debt is repaid. Although some such transfer deals also extend the zero percent interest to new purchases made using the card, beware that not all of them do and that in such cases your monthly repayments will go first to paying off the transferred balance, leaving the new purchases to attract the maximum rate of interest. Clearly, it will also be important to diary the date when the introductory deal is going to expire and when any existing balance and new purchases both revert to the provider’s standard rate of interest. This will mark the time when you should aim to have cleared outstanding balances or are prepared to start the process of finding the right credit card for you all over again with a further balance transfer at zero percent interest.

Of course, if you are sufficiently disciplined to repay the whole of any outstanding credit balance every month, then you will pay no interest however much your card is used for purchases (although cash withdrawals will start to attract interest from the moment the withdrawal is made). In such a case, you are less likely to be concerned about the rate of interest charged by the provider and more interested in whether a monthly subscription or administration fee is levied for holding the card. If interest rates are less to worry about, you might instead consider the benefits of any “reward” or “cash back” offers made by certain card providers.

Finally, whatever kind of credit card user you are likely to be, the opportunities for your finding the right credit card for you will also be determined by the kind of credit card user you have been in the past. These days, past credit history will be scrutinised more closely than ever and the availability of some cards, some transfer offers, and the most attractive interest rates, is likely to be restricted to those with the healthiest credit rating.

Best credit cards

The best credit cards are those that charge you nothing for using them! However much it might seem like wishful thinking, it is still in fact possible to find a whole range of credit card providers who are prepared to do just that – charge no interest on outstanding balances or on purchases you make with the card.

Surprising as it may seem in the current climate of recession and otherwise restricted credit facilities, competition between credit card providers remains so keen that many are prepared to lure new customers with offers of what is effectively free credit. Such free credit takes one of two forms and some providers will offer both in order to attract new customers. The most common is the offer of a zero rate of interest on outstanding balances transferred to the new card from another, existing credit card account. For an introductory period – which can be any period up to about a year, depending on the new credit card chosen – no interest is charged on the outstanding debt.

The availability of free credit in this way can provide an excellent opportunity for repaying existing credit card debts, without the debt increasing each month through the addition of further interest. All good things come to an end, however, and at the end of any such introductory period, the provider’s normal rates of interest will apply. With the best credit cards, of course, this rate will still compare favourable with the rates charged by other cards.

But it is not necessary to have accumulated a debit balance elsewhere in order to secure free credit on its transfers. Many card providers have an introductory offer that provides free credit for purchases made in the first six months or so of its issue. Once again, however, it would be important not to be lulled into a false sense of ever-lasting interest-free credit. The offer will come to an end at some stage and the card-holder will then be as concerned as ever about the interest rate that applies. Once again, the best credit cards will charge a competitive rate and not a rate designed to recoup the interest “lost” during the zero-interest offer period.

If you are one of the fortunate few who manage to repay the whole of your credit card balance each month and have no outstanding balance to transfer to a new card on a zero-percent interest offer, then interest rates will, of course, have less interest. In these circumstances, the best credit cards are likely to be those that are issued free of charge, have no monthly subscription, management or administration fee and, in the best of all worlds, nevertheless offer “rewards” or cash back on the use of the card.

With no interest to worry about, you might choose to take advantage of these reward or cash-back credit cards which allocate points according to purchases made and which can be redeemed for specific goods or services or even the equivalent cash back. The best credit cards, therefore, really are those that have the capacity of offering “something for nothing”, in terms of free credit, rewards or cash back. Beware, though, that all good things are likely to come to an end at some stage.

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