Credit card small print traps to avoid

These small print tricks are employed by even the best credit cards and may cost you in the pocket.

If you use one of the top credit cards properly then they can make your financial transactions more secure, they can save you a lot of money, and they can even make you money. However, there's an awful lot to understand in the small print.%VIRTUAL-SkimlinksPromo%
To demonstrate this I've gone through the small print of six leading card providers: MBNA, Virgin, Lloyds TSB, Halifax, Bank of Scotland and Tesco. And there were some tricks that they were guilty of.

0% deals can be withdrawn
With five of the card providers' contracts, 0% deals and other promotional rates can be withdrawn if you miss a payment or go over your credit limit, or, in some cases, otherwise breach your contract.
The exception was Tesco, which writes: "We will not change a fixed or special offer rate on an account for as long as we have agreed to keep it fixed," with no get-out clause in case you breach your contract. But, as you'll see soon, there are other ways it could limit your use of 0% deals if you fall into difficulties.

You'll get shorter 0% deals than advertised
Halifax explicitly states that you might get a shorter 0% deal than the advertised one, although half of accepted applicants should get the full deals, the rest can expect less. Tesco explicitly states that everyone who is accepted will get the full 0% deals.

I saw no small print from the other four stating whether you could be offered a shorter deal. If they do, I think there's a chance you could complain to the free Financial Ombudsman Service. Read How to complain to the Financial Ombudsman Service.

A small number will get the advertised rates
With all six of these cards, less than half of applicants get the advertised rate, because more than half are either rejected outright or offered a higher rate.

However, even the advertised rates are extortionate. No sane person who understands maths and debt should willingly build up their debts to the level that they have no choice but to pay the hideous rates of APR that you get after 0% card deals expire.

Negative order of repayments
Credit cards separate your debts into balance transfers, purchases, and cash transactions (such as cash withdrawals) and they offer different deals and interest rates on each.

It used to be that customers' repayments would go to pay off the cheapest debts first, so that the most expensive ones sit on the card longer attracting more interest. This has largely been nipped in the bud after consumer groups and the Government put considerable pressure on lenders.

However, all six of these card providers have found different ways to potentially charge you more.

When you have dual 0% deals on balance transfers and purchases, and you use both sections, you could end up paying interest unexpectedly.

With Virgin and MBNA, let's say you have 20 months at 0% for balance transfers and six months at 0% for purchases. With the interest rates equal at 0%, Virgin and MBNA will usually pay off the type of transaction that has the highest revert-to rate after the 0% deals expire. The balance-transfer revert-to rate is normally ever-so-slightly higher (and cynically it has been since just around the time it introduced this bit of small print), so during the dual 0% deals it will allocate payments to your balance transfers.

Now let's say you do a £5,000 balance transfer when opening the account and then make a £600 purchase, and you start paying off £100 per month. After six months, you've paid off £600 of the balance transfer, but all £600 of the purchase is stuck on your card. Although Virgin and MBNA will prioritise your purchase, you will now pay interest until it is clear.

Halifax, Lloyds and Bank of Scotland customers will normally see their repayments allocated to purchases before balance transfers when they have two deals at 0%. Since purchase deals are usually shorter than balance transfers, this should work out ok for most customers. However, when their cards offer a longer purchase deal (at introduction or on the anniversary), you could find your 0% balance transfer is not paid off first as you'd like, and you start paying interest sooner than you'd expect.

Tesco has a completely different way to catch you out. The Tesco Buy Now Pay Later deals are paid off after you have paid everything else off, which means it could potentially be stuck on your account long after any 0% purchases deal has expired if you have a large balance transfer to pay off first.

Miniscule minimum repayments
Five of the card providers charge just 1% of the balance plus interest and charges each month. It's no wonder that so many people, with their wants and desires, cannot resist making tiny repayments. As a result they drag out and build up their debts until some emergency brings them – too late – to their senses.

The sixth provider, Tesco, makes you pay the same or even less if you use its Tesco Buy Now, Pay Later offers. Insane.

Snowballing debt made easy
All six make it very easy for those living on a tight budget to fall into a debt spiral. If you're fined for breach of contract, you must pay the fine off the next month, along with all the normal interest and 1% of the balance, or you'll receive another fine. These can easily add up, in the space of a few months, so that you can't ever expect to pay off your debt.

Anyone living so close to default should seriously consider paying down their debts while they have a chance. You should not be borrowing for fun things: it will only mean you can afford fewer fun things over the course of your life. Read Spend less and have more.

Your savings accounts can be raided
If you miss payments with Lloyds, Bank of Scotland and Halifax, as with most banks, they can raid your current accounts and savings accounts to pay your credit card bills and arrears. It's common for people in serious debt to open separate accounts before defaulting, and debt charities recommend that they do so, so that they have money to live on.

Payment date can be changed
Lloyds, Bank of Scotland and Halifax explicitly state that they can change your payment or statement dates merely in a note in your statement. Some people have reported falling foul of such changes, since they have accidentally not paid on time having missed the short explanation on the statement – and been fined and had a bad mark on their credit records.

The banks' small print directly states that they can do what good credit card customers have previously complained about: "For example, we may reduce the number of days between the statement date and the payment date if you always pay off your balance in full."

I can't think of any benevolent reason for them to go to that effort. If this happens to you and you suffer financially, consider complaining to the Ombudsman.

Some purchases are charged as cash withdrawals
With all six card providers, if you buy foreign currency, travellers' cheques, gaming chips or gift cards, or if you make money orders or pay for wagers, the transaction will be charged as cash advance or cash withdrawal. This means you will be charged interest immediately at an incredibly high rate, with no interest-free period, and you'll be charged a high fee on top.

You could lose your home
All six card providers state – some more clearly than others – that they can get a "charging order" on properties in England and Wales, and sometimes Scotland, if you fall behind on repayments. This means that, whenever you sell your home, the provider gets to take its loan, interest and charges from the sale amount before you get the difference. So much for credit cards being "unsecured" on homes.

After getting a charging order, all these companies can, in some very limited circumstances, even force you to sell your home. That's much harder for them to do though.

For more read Banks turning unsecured loans into secured ones.

You're always responsible
Virgin and MBNA state that if you don't receive their email or SMS alert that your statement is ready, or if you can't access your statement, you're still responsible for paying. It doesn't matter what the reason is, apparently, even if it's their fault.

I think the Ombudsman might have something to say about that, but it'd be a huge faff to correct your credit report, so you should set your own monthly reminders to pay your bills.

If you need to check your credit record, you can get a free trial with Experian through Lovemoney.

No warning of 0% deals expiring
Halifax shows how important it is for you to set a reminder in advance of the 0% deals ending, since it will only notify you when the deal ends, and with what seems to be a token notice in your statement. The other five don't mention what notice they'll give you at all, if any.

Set yourself your own advanced reminder to pay off your card, or to compare and switch before the deal ends.

Tesco credit card offers 18 months interest-free on purchases

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Credit card small print traps to avoid

It is reasonable to assume that if you take out a mobile phone contract at £30 a month for 24 months that's exactly what you'll pay unless you exceed the tariff. Yet mobile phone providers have come under fire for a snag buried in the small print – a clause to allow mid-contract price rises.

Prices are rising by a median of 81p a month and 70% of consumers are completely unaware off this sneaky move, according to Tesco Mobile, so be sure to check any new contracts before you sign the dotted line.

Financial service providers always refer to 'typical APR' in advertising to attract customers with favourable rates of interest.

Yet the typical APR on loans and credit cards is only available for those applicants who have a squeaky clean credit record, everyone else could end up with a much higher rate. For example, under EU rules, credit card providers only have to provide the typical APR advertised to 51% of applicants.

So always consider this when applying for accounts and products, and if approved – look out the actual APR that you will be charged.

The highest paying savings accounts on the market tend to come with a string of strict terms, which if you fall foul of, result in a drop in interest. Common requirements include paying in a set sum each month and not making withdrawals during a set period.

Make sure to fully understand these terms before opening a savings account and if you choose an account with a six or 12 month bonus, remember that this will plummet when the bonus period ends.

Cashback credit cards that pay you a small percentage each time you spend on the card are full of loopholes in the small print. All have a maximum spend, but many have a minimum spend too.

For example, the Sainsbury's Cashback Low Rate card advertises that it offers users 5% cashback for the first three months. However the 5% cashback is capped at £50 a month. A further 5% cashback is subject to you spending £500 a month on the card (£250 of that at Sainsbury's).

Attempt to repay your mortgage early and you may be greeted with a hefty fee in the form of an early repayment charge. These penalties vary from lender to lender and even deal to deal, but are typically be around 10% of the outstanding balance.

Details of any early repayment charges should be clearly outlined in your mortgage contract but it is worth double-checking with your lender before you try to make a payment.

Insurance is an incredibly complex area of personal finance and different forms of cover are riddled with different hitches that make it crucial to read the small print. Failure to do so could lead you to pay for a product you would be never be able to claim upon, or unknowingly do something that invalidates your claim.

Always buy the right level of cover for your needs and pay close attention to any exclusions in the policy wording. For example, many travel insurance policies for winter sports won't pay out for treatment of injuries incurred while under the influence of alcohol.

Think a credit card can't do any damage at home in your drawer? Think again. Some credit and store cards charge a dormancy fee if you don't use them regularly.

For example, all Santander-issued store cards, including Topshop and Laura Ashley cards among others, charge a fee of £10 if you remain in debit for three consecutive months.

Exceed the monthly usage allowance in your broadband deal and you could be hit with a huge fee. Common with the cheapest broadband deals on the market, penalty charges for going over your contracted limit can push your bills up even higher than if you paid for a deal with unlimited usage.

According to Talk Talk, some households are being forced to pay an additional £40 per month for exceeding their usage allowance. BT for example, charges £5 per every 5GB extra used.

Familiarise yourself with the download limit in your package and the penalties for exceeding it, decide whether you are better off with an unlimited deal.

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