How to make the most of your credit card

The government and the credit card industry have agreed a number of rule changes that will improve credit card customer rights and the new regulations came into force in January.

The most important rule change will affect the way debts are paid off. Traditionally, most credit card companies have allocated payments to the cheapest debt first - a practice known as 'negative payment hierarchy' - against the interests of cardholders.

So if you had transferred an existing balance to a 0% card and then spent on the card, repayments would be used to clear the transferred interest-free balance, leaving interest to mount up on the spend. However, card companies now have to settle the most expensive debt first - 'positive payment hierarchy'.

Another rule change will affect minimum payments. New customers will have to repay a minimum sum, comprising interest, fees and charges plus 1% of the principal debt, to encourage better repayment practice.

Current minimum repayments vary greatly but can be so low that a debt lingers on for years.

For example, someone paying back the minimum (in this case, the greater of 2.5% or £5) on a debt of £1,000 on a card with an APR of 18.13% would take 17 years to clear their card and pay £1,113 in interest, according to

"This change will benefit new cardholders, but it won't apply to existing customers, as some could see their repayments increase dramatically," warns Sandra Quinn, spokesperson for the UK Cards Association.

You can now expect to receive an annual statement that will enable you to compare your card with others on the market. Providers will also have to give you more notice when they want to increase the interest rate or credit limit on your card.

"You'll be able to opt out of a rate increase if you can agree a payment plan with your lender," says Quinn.

The new rules give credit cardholders more protection. However, it's important to pick the right card or cards for your pattern of use.

Read: Choose the right credit card for you

Andrew Hagger, a spokesperson for financial comparison site, adds: "They can help with cashflow and offer protection under section 75 of the Consumer Credit Act 1974 when you buy goods worth between £100 and £30,000. And they don't have to cost much - if anything - provided you pick one that's right for you."


There are five main 'card flexing' strategies for cardholders.


If, like 61% of credit cardholders, you clear your balance each month, the interest rate is immaterial. "Look instead for a reward card or a cashback card, as you'll get something back for spending on your card," says Michelle Slade, a spokesperson for Moneyfacts.

"There aren't so many cashback cards around now, as many providers prefer to tie customers in with points, but you can still get paid for spending."

But comparing cashback cards isn't always easy. Although some set a single rate for the year - Capital One Bank pays 1% and Smile 0.25% - others set a cap on your spend or restrict where you can get cashback.

And some cards have tiered cashback returns. Market leader American Express, for example, has an introductory offer of 5% for the first three months, up to a maximum return of £100. This drops to 1.25% on spending above £7,500.  

Also look out for charges. Capital One's £18 annual fee on its card, for example, may be fine if you intend to spend more than, say, £1,800 a year, but it's not so good if you don't use your card very often.

Some reward cards are more generous than cashback cards. For instance, Tesco Bank's Clubcard Mastercard gives you a Clubcard point for every £4 you spend, plus a point for every £1 spent in Tesco.  

Some cards offer airmiles - for example, Lloyds TSB's card - or loyalty points that can be spent through a range of partners. NatWest's Your Points scheme gives you one point for every £1 you spend, which can be used with easyJet, M&S and Boots.


Keeping a balance on a credit card is expensive. With an interest rate of 18.9%, a £2,000 balance will cost you around £30 each month. But it's possible to stem the interest flow with a 0% card.

There are plenty of these around, with the longest interest-free period currently being offered by Barclaycard (17 months) and MBNA Europe and Yorkshire Bank (16 months).

Most cards carry a balance transfer fee, typically 2.9 to 3% of the balance you want to transfer, but it's often worth paying this to sidestep the interest charge. Make sure you keep up with the minimum repayments, though, as the 0% APR could be replaced with a much heftier interest rate if you miss a payment.

If you're likely to have a balance at the end of the term, transfer to another 0% deal, as many 0% cards have high follow-on rates.

However, Hagger warns against taking these deals for granted. "The card companies are being more choosy, and you'll need to have a squeaky clean credit record to qualify," he says.


Some cards charge 0% for new purchases. These could be particularly suitable if you're planning a major purchase that will take a few months to pay off or if you're expecting a windfall, such as an inheritance, to clear your debt.

"They allow you to defer repayment of the balance, so you need to have financial discipline to take advantage of them. But there are some good offers available," says Hagger.

The best deal is Tesco Bank's Clubcard Mastercard, which offers a 0% rate on purchases for 13 months. However, several other providers offer a year of interest-free credit, including Sainsbury's Mastercard, Barclaycard and Virgin Money.


Affinity cards are offered by organisations ranging from charities and football clubs to supermarkets and airlines.

Those offered by organisations such as charities, football clubs and universities enable cardholders to support them, with a percentage of their spend going to the card issuer. For example, the Oxfam card, backed by the Co-operative Bank, donates £15 when the card is opened and 25p for each £100 spent.

Those offered by supermarkets, retailers and airlines give customers something back. Supermarket cards tend to be the most popular. Sainsbury's gives one point for every £5 spent, but is increasing this to 10 points for in-store spend in the first two years. Do your £75 a week shop here, and after 10 weeks you will have earned 1,500 points, worth £7.50.

Airline cards are worth considering. For example, the BMI American Express card gives 1.5 miles for every £1 spent, and this is boosted to 4.5 miles if you spend on BMI flights.

However, although these cards may be tempting, you should consider other features. Ryanair's APR of 19.9% means you could pay for your flights several times over in interest if you maintain a large balance.

This article was originally published in Money Observer - Moneywise's sister publication - in February 2011.