Lenders become more choosey
Tempted by a great 0 per cent credit card balance transfer deal? Chances are that from now on your application could be turned down.
That may not be a reflection on your credit score. It’s more that the lenders are beginning to pick and choose who they offer their credit cards too.
And if you don’t have a current account with a bank, it may even say no to you having its plastic.
Royal Bank of Scotland (RBS) is the latest big lender to do this, this month following in the footsteps of HSBC in only accepting credit card applications from its existing customers.
The move means the group’s credit cards – including the Mint brand, but not including its Black or Private cards - will only accept applications from current account customers of RBS and NatWest.
HSBC similarly restricted its issuing of credit cards to existing customers a year ago, in October 2008, with a similar crack down on personal loans before that, in 2007.
RBS claimed the move would help it give a better service to customers. A spokeswoman for RBS, said: "We are focussing where we can on helping our current account customers, savers and mortgage borrowers and this move helps us improve the service we can provide to them.”
So if you can’t get a NatWest or HSBC credit card deal, are you really missing out? Well, RBS has a market-leading balance transfer deal at 0 per cent for 15 months under the BT brand. HSBC also has a 0 per cent for 15 months deal. * Both are now only available to the respective bank’s own customers.
Is a 0 per cent deal the best option?
The banks argue that anyone wanting to take advantage of their credit card rates simply has to open a current account, but do you really want to go to all that bother just to get a 0 per cent deal?
For starters, this will restrict your choice of bank accounts to those being offered by the respective banks. For example, RBS’s fee-free current account pays just 0.1 per cent in-credit interest and charges 19.24 per cent Equivalent Annual Rate (EAR) on overdrafts. *
But important to note is that there are plenty of other reasonably attractive credit card deals around, even excluding the offerings from HSBC and RBS.
Virgin, for instance, offers a 0 per cent balance transfer for 16 months, reverting to 16.6 per cent APR after 12 months. However, with all these reasonably long-term 0 per cent deals – include RBS and HSBC – the stinger in recent times has become the balance transfer fee.
The standard fee is around 3 per cent – Virgin’s is 2.98 per cent – which means you’ll be charged £30 for every £1,000 you transfer. *
That can be fine if you’re going to make full use of the whole 16 months interest-free period, but could work out very expensive if you plan to pay the card off more quickly. In that case, you may be better off sticking with your current card as the interest charge could proves less than the balance transfer free. Remember to do some sums to work out which deal is best for you.
Also, if you sign up for a balance transfer deal remember that in most cases, interest on whatever you spend will be charged at once at the card’s standard rate, which can be quite expensive. Even if you then make a payment to the card, the money will only reduce the interest-free balance, meaning you will carry on paying interest on whatever you spent until the whole balance is paid off.
*All rates correct as of 8 October, 2009
