Don't be a credit card April Fool

Credit cards can make April Fools of all of us if we don't read the small print. The headline rates are enticing, and the introductory offers make you smile, but the only one laughing will be the bank if you get caught out by sneaky terms and conditions. Here are some catches to look out for:

You don't get the card you applied for

You see a card with a fantastic interest rate, but when you come to apply you discover you don't qualify for the "typical" headline rate, and you find yourself offered a card with a much higher rate. Make sure you only sign up for the card you have applied for.

You fall for the cashback or reward points trick

If you don't repay your balance each month, the only thing you should be looking at when applying for a new card is the interest rate. Perks such as cashback or reward points will be dwarfed by any interest charges you will pay. Only choose a rewards card if you repay in full each month, or the perks are the deciding factor between two otherwise identical cards.

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You don't notice the repayment period has been cut

Most cards won't charge you interest if you pay within a certain number of days from the statement date or date of purchase. Several card companies have reduced this period. If yours has, make sure you know the date you need to make your payment by to avoid charges. One or two cards have NO interest-free period.

If you think you might forget to pay on time - particularly if you are going on holiday - set up a direct debit, even if it's only for the minimum amount. That way you will always avoid late payment fees, even if there are some months when you dont have the cash to hand to pay off the whole balance.

The minimum monthly payment has fallen

Some credit cards have reduced the minimum sum you need to repay each month. That may seem great if you are a bit strapped for ready cash - but there is no such thing as a free lunch. If you pay a reduced sum now the rest of your debt is racking up interest, and the only one to win in this game is the credit card company.

If your card company requires you to pay a minimum of £5 plus the monthly interest owing on spending of £2,000, at a typical interest rate of 15.9%, your debt will take an horrifying 33 years to clear. The interest bill over the period will amount to £4,976. You should always try to pay more than the minimum amount asked for.

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You pay a fee for a load of "free" services

Unless there is some particular feature offered by a certain card that you know will save you money, compared with purchasing this feature separately, avoid paying an annual fee for a card. It is completely unnecessary.

Remember that all the fancy features of paid-for cards, such as concierge services and shopping discounts, are worthless unless you use them. Be particularly wary of free insurance - especially travel insurance. Make sure it meets your needs. Otherwise you could find yourself underinsured, or having to buy appropriate insurance separately.

You use your card for shopping abroad

Fees for overseas usage (known as "exchange rate loading") have been creeping up - but are avoidable if you choose the right card. The average charge is 2.75%, but Halifax and Bank of Scotland charge 2.95%. and LV and Goldfish charge an eye-watering 3% costing you £30 on a £1,000 spend. If you opt for a card such as Nationwide's, or the Post Office's, you don't pay the loading charge.

You withdraw cash from a machine

Don't use a credit card to get cash from an ATM. You will pay a cash machine charge, of as much as 3% and a minimum charge of £3 (LV and Capital One cards, for example), and you will pay interest from the date of the withdrawal (no free period, such as that offered by most companies for purchases) and most cards charge a higher interest rate for cash than for purchases anyway. A £3 charge on a £10 withdrawal amounts to 33.3% - and that's before interest is added.

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Annie Shaw
25 April 2008 © Moneyextra.com

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