Personal Finance - Ensure your card does you credit

Six out of ten people with credit cards still carry plastic from one of the big high-street banks. An astonishing seven million people have got the original credit card, Barclaycard, which charges £10 a year and 19.9% APR.

That is far more expensive for those who borrow on their cards from month to month than newer (and heavily advertised) offerings from American issuers such as Capital One (no annual fee and 11.9% APR). And those who pay off their bills in full each month would do better with a card which carries perks such as money off bills or cash back from, for example, Goldfish and Alliance & Leicester (see below).

It is difficult to tell whether our attachment to high-street cards is apathy or simply a misunderstanding – many people feel more comfortable dealing with a name they know well, but forget that if something goes wrong with a loan agreement they are not going to lose any money. It is worth noting that Visa and Mastercard place fairly stringent entry criteria on banks and other institutions bearing their logos.

If you think the choice in the credit-card market is already bewildering, think again. New entrants so far in 1999 include Direct Line and another American player, Bank One. According to the Credit Card Research Group, 80% of Americans have a credit card, against 39% of English adults. There’s plenty of room in our wallets for more plastic.

You can cut short the search for the best card by deciding what sort of spender you are from the list below. And for those who love a slice of prestige, we’ve included the best Gold and Platinum deals.

If you are the cautious type and pay off the bill every month, then you should be getting something for nothing when you use the credit card.

The interest rate isn’t a problem because you won’t be borrowing, but you should check there is no annual fee and investigate any useful perks which may be available.

The problem with many old-fashioned points and loyalty schemes was the hassle involved in claiming rewards, which are often catalogue goods.

‘Two-thirds of loyalty schemes are not taken up by cardholders,’ says Geoff Seymour at Alliance & Leicester. The bank has pioneered the use of cash-back credit cards in the UK, and has attracted 675,000 users.

A&L’s MoneyBack credit card (0500 838383) gives you 0.5% of what you spend up to £3,999 and pays back 1% above that – there are double money offers when you use your card for various shops and services, including Interflora and Ticketmaster.

A&L also has a MoneyBack Gold card, which offers extra perks at no extra cost for those earning £20,000 or more a year. The money-back scheme on the Gold card gives up to 4% cash back on money you spend at selected retailers.

Loyal Sainsbury shoppers should look at the supermarket’s Visa cards.

Using a Sainsbury Classic Visa card (0500 405060) in conjunction with a Reward loyalty card will double the points you get on shopping in Sainsbury stores, and you also get reward points for all other spending.

The APR is 20.9%. A Tesco card (0800 406050) pays you one Clubcard point for every £2 spent, APR 14.9% with a special offer of 9.9% for the first six months.

The most successful perks card has been Goldfish, with an APR of 18.9% (0345 609060). This gives you money-off vouchers for bills (for example, BG and BT) or shopping vouchers including Boots and Asda. The returns on this scheme are generally about 1% of what you spend.

Another option for those who pay off each month is a charity or ‘affinity’ card that raises money for your chosen organisation. Just about every university and football club seems to have one of these cards, and the usual donation is £5 when you take out the card and 25p for each £100 you spend with the card.

Charity cards issued by Midland Bank have relatively low rates – 18.09% APR – and pay £10 on issue. Midland’s range (08705 353344) includes cards benefiting Shelter and the National Trust.

The latest charity card, issued by People’s Bank for Comic Relief, charges 17.9% APR after six months on 7.9% APR. The Co-operative Bank (0800 126000) also invites all its credit-card customers to vote on which of a selected range of charities and lobbying groups should receive donations from card use.

Not all of us are good at paying off our bill each month. In fact, about half of us use our plastic cards to borrow cash from month to month. If you carry a balance you should go for the cheapest method of borrowing, meaning no annual fee and a very low interest rate.

There a several ‘teaser’ offers giving very low interest rates for a limited period. These are good for people who want to transfer a balance from a more expensive card, and then gradually pay it off.

People’s Bank, an American issuer, is currently charging 5.9% for the first six months (0500 551055). The rate then rises to 16.9%.

You may prefer a consistently low rate. Capital One (0800 952 5252) is now offering 11.9% APR on a permanent basis. With rates this low, and 54 days’ free credit, there is less reason to take out a low-rate card with no interest-free period. (The Co-op and Royal Bank of Scotland offer these deals.)

If you often miss payments on your card, or are very late, you should be careful of taking out a low-cost card. These cards keep their charges low by making charges if you pay late. Setting up a direct debit to pay off the minimum each month will sort this problem, otherwise stick with Barclaycard (01604 234234), which charge £10 a year but does not charge a late payment fee.

Of course, cards can also bestow ‘status’ upon their customers. You will know you are seriously successful when you are invited to take out a World Signia credit card. Run by Mastercard, this select brand is only offered to chief executives and world leaders. There are only 10,000 of these in Europe.

The rest of us in search of a little extra prestige will have to make do with Platinum and Gold cards. All you need is a salary of £20,000 to apply for RBS Advanta’s bargain Platinum card (0800 077770), which has no fee and an APR of 5.9% until March 2000, rising to 17.9% after that.

There are few extra frills on that, although the Royal Bank of Scotland (0800 161616) has a new Platinum Card, which offers discounts on tax-return services and holidays. The APR is 6.9% until March 2000 and then 17.9%.

Those who do not mind paying for plastic may want the extra kudos of an American Express credit card. The Gold Credit Card (01273 696933) is free for the first year and charges 15.9% APR. It offers perks including purchase protection of up to £20,000 a year. For those invited to take an Amex Platinum card, there is a wider range of services including hotel Isabel Berwick is personal finance editor of the Independent on Sunday.