Halifax's ruse ramps up credit card confusion

Ever since credit card providers starting offering introductory 0 per cent deals, things have been relatively simple for consumers.

They applied for one of the 0 per cent credit cards, and if they were deemed credit worthy they got the 0 per cent rate, and if they weren't they were rejected, simple.

Now for the first time, one of the UK's biggest providers, Halifax, has moved these clearly defined goalposts. Halifax's new 0 per cent credit card deal contains what was once called a "rate for risk" pricing.

"This means that instead of simply giving all successful applicants the 0 per cent rate – which applies for 15 months – Halifax will offer some customers who don't have a very clean credit record a shorter 0 per cent period," said David Black from financial information service Defaqto. "Rate for risk is common, but it normally only applies to the interest rate charged after the end of any 0 per cent period. This is the first card where the 0 per cent offer itself is dependent on the credit scoring."

The move to "rate for risk" 0 per cent deals is described as worrying by Martin Lewis, founder of Moneysavingexpert.com. "Previously, the one cast-iron certainty with these deals is if you get accepted you get the 0 per cent offer – though the APR you jump to once it ends may depend on your credit score. The fact we don't even have official language to describe this deal – perhaps it's a 'representative promotional rate' – gives you a clue at how different this is. Worse, from the card company's perspective, it's a clever idea. It can promote its 0 per cent deals to more people and give them to fewer."

Under EU rules, only 51 per cent of credit card customers have to receive the advertised rate in order for it to be legal. The remainder can in theory be charged a higher rate dependent on how risky they are. This has prompted consumer groups to criticise card providers for being disingenuous in their advertising and cherry picking customers.

"I'm not overly surprised to see this move. It's another way for card companies to advertise enticing long-term 0 per cent best buy deals but at the same time limit the cost to itself by offering an all-round inferior deal to a greater number of applicants," said Andrew Hagger from Moneynet.com.

And in the case of Halifax's credit card, the cost of having a less than perfect credit card can be considerable. "With an A1 credit score you could get 0 per cent for 15 months and a rate of 17.95 per cent when the promotional rate expires," continued Mr Hagger. "At the other end of the scale an applicant with a blemish or two against their name may only get 11 months free and then have to pay a rate of 23.95 per cent. I'm pretty sure this initiative to boost profitability while still gaining free publicity via best buy tables will be seen as a blueprint and followed by other lenders before too long."

And this is more likely given the country's deepening economic woes. "If I was made redundant tomorrow and went into a bank and asked for a loan, I would almost certainly be declined because I didn't have an income," said Mr Black. "However, if I had credit cards I could continue to spend and rack up debt without the provider being any the wiser. This makes credit cards riskier and in this environment this is being reflected in the cost and moves such as that taken by the Halifax."

It seems that after a relatively brief period where mortgage, loan and credit card rates have been heading down and lending criteria loosened a little, providers once again are nervously watching the economy. Halifax's decision to tweak its 0 per cent offer according to applicants' credit worthiness is only one sign of this. "Increasingly we are seeing providers offer cards only to existing customers," said Mr Black. "That way they have much more information about the applicants' finances and this enables them to much more easily assess risk."

But this doesn't mean that there aren't attractive credit card deals out there, and particularly with a 0 per cent balance transfer or new purchasers sweetener. "Offering a 0 per cent is a real must-do for any credit card looking to attract high volumes of customers," said Kevin Mountford from price comparison website Moneysupermarket.com. "Customers are savvy about their credit card and really value the 0 per cent deal."

And according to figures from Defaqto, out of all new credit card offers available, 59 per cent offer 0 per cent on balance transfers, 70 per cent 0 per cent on new purchases and 54 per cent 0 per cent on both. "It's really a question of comparing the offers and deciding which card offers the longest 0 per cent period, whether or not it's balance transfer, new purchases or both you want," said Mr Mountford. "And remember you can always switch to another low rate card once this time has elapsed."

According to Defaqto, as far as length of interest-free period goes, the best buys are 22 months from Barclaycard for balance transfer while M&S Money, Tesco and Halifax offer 15 months on purchases. The Halifax card, though, is the best for a combination of balance transfers and new purchases. So how can consumers check to see if they can jump through the hoops put in front of them by the Halifax and other providers and grab the headline rate deal?

"Try to find out your credit worthiness, said Mr Mountford. "You can do this by using the main credit reference agency websites Experian, Equifax and Call Credit."

Usually credit scores are determined by a number of factors such as employment status, how long the individual has been living at a particular address and whether or not they have kept up with previous credit repayments. Achieving a high credit rating, through one of the reference agencies, is no guarantee of a thumbs up from a particular provider, and the advice from the experts is to walk away if you are offered a rate that you're not happy with.