A credit card is not just for Christmas!

	Typical APR Variable	Max Int Free
	14.9%	56 days
	14.9%	56 days
	14.9%	56 days
	14.9%	56 days
	15.9%	56 days
* Based on Lowest Standard Rates and is not a full search of the whole market

Forget all that White Christmas malarkey; use the wrong credit card for seasonal shopping and you'll end up with a Blue Christmas and, balance sheet-wise, a Seriously Red New Year. It's all down to the APR (annual percentage rate), always the best indicator of whether a credit card is worth having and using. But, more so than ever, it's also down to careful research and cost comparisons, best done online.

Remember, too, if you are planning to apply for one of the dwindling 0% card deals available, that time is not on your side. The average period between application and receipt of a new, gleaming piece of plastic magic is two weeks; applying today would give you only three shopping days before Christmas.

The more organised shoppers will already have sorted out their new credit cards but will they have got themselves a good rate of interest? Chances are "No!" There has been a veritable blizzard of credit card offers this past autumn, around 100 million through the postal system alone. The marketing cost of such a direct mail campaign works out in the region of £150 per card. To subsidise this most of the postal deals offered are around 2% higher than the average market rate!

Even so, research conducted by the Direct Mail Information Service indicates that over 66% of offer recipients are tempted to take out a new credit card by a mailshot. Ironically, many will use that card to make purchases online, again benefiting the card companies. It is calculated that 22 million adults purchase in this way; online spending was £16 billion in 2004 (up 33% on the previous year) and the card companies obtain a higher merchant service fee from online purchases.

Whilst on the online subject, a surge of fraud is expected in the run up to Christmas, given the amount of expected traffic. (The internet retail monitoring group IMRG estimates UK shoppers will spend £5 billion on 24 million online festive purchases.) The Association of Payment Clearing Services notes that online banking fraud increased by 260% to £14.5 million in the first half of 2005, and, in the past year, credit and debit card fraud in buying goods online or over the phone has risen by 33%.

Credit pickings are getting slimmer

The past two months have seen a steady tightening of credit by banks and card companies. The 0% deal is increasingly under threat; the recent Precious Plastic 2006 report from PricewaterhouseCoopers says 0% balance transfers are costing the card industry £600 million a year. Many companies have now cut back on the duration time of 0% offers, and the concept of a capped or limited transfer fee, 2% or a one-off £35 to £50 (depending on lender), is being terminated. The days of the rate tart would appear to be numbered.

APRs are being increased and there's even talk of annual fees being introduced. Bankruptcy and bad debt is becoming a serious problem for card issuers and, as Defaqto reported, consumers will bear the brunt of the long-term reduction in margins facing the credit card industry.

There are still 0% deals available, but do your research and check the small print, particularly as regards the number of months offered and the type of transactions covered. If planning to transfer a balance be aware of hidden fees and the payment hierarchy where repayments are steered to the cheapest debt first, meaning that big spenders accrue debt at the more expensive rate of interest. In fact if you're planning to spend really big time with no intention of settling the balance in January, then a flat rate card may well prove a better bet.

What to avoid

Credit card cheques, of course! They charge a substantial APR and handling fee and do not offer the same protection on purchasing goods that comes with a standard credit card. More iniquitous is the store card. Store card APRs can be up to 30% or even more and a recent investigation by the Competition Commission found that consumers are wasting between £80 million and £100 million in borrowing this way.

Yet, many are lured, en route to Santa's Grotto, by bumper discounts offered on signing up to store credit cards. Don't be tempted by these special discounts or offers of sale previews, or if you must take advantage of the deal then pay off the balance within a month and destroy the card!

15 July 2008 © Moneyextra.com

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