Credit card crunch

If your New Year credit card bill has prompted you to switch to a cheaper card, be aware that the credit crunch and the squeeze on lenders' profits makes this a tricky time to shop around for a new deal - you might find the cards are stacked against you.

Egg prefers the frying pan

Egg shocked 161,000 of its credit customers last week by writing to inform them that their accounts were to be closed. The online bank claimed it was ridding itself of customers who posed an 'unacceptable risk' to the bank because they had exceeded their credit limit or missed payments. However internet forums were awash with Egg customers who claimed they had received the letter despite keeping their accounts in order.

The move by Egg is evidence that the credit crunch means banks are getting fussier about who they lend to. If credit conditions worsen, then more may be forced to take a stronger line with borrowers who fail to make regular payments or habitually breach credit limits. So-called 'rate tarts' who routinely transfer their balance to a card charging 0% for a set period of time might find the days of this being a simple process are over, for the time being at least.

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Shifting debts successfully

When looking for a new provider to take over your balance, there are two hurdles to jump. Firstly you cannot transfer balances between cards backed by the same provider, or which is part of the same banking group. So, for example, you won't be able to transfer your balance from Alliance & Leicester to Virgin Money because both cards are issued by MBNA.

Secondly, most deals are only available to new customers, so you can't afford to complete the circuit of card providers too frequently. Typically your account will need to have been closed between 12 and 24 months before you can be considered a new customer again.

Lisa Taylor, analyst at Moneyfacts, says: "It's important to check out the small print of any balance transfer deal, and establish who is the credit provider for both your existing and new credit card deal. Otherwise you could find yourself with a new card and your balance transfer being refused or charged at the standard rate."

Can you save money by switching to another credit card? Find out with Moneyextra's comparison service?

08 February 2008 © Moneyextra.com

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