Each of this trio of plastic tricks makes us pay up quicker - and costs us money.
Running a credit-card company is a licence to print money.
For example, the Bank of England's base rate is 4.75% a year, yet most popular credit cards charge standard interest rates of 15%+ APR. This is a decent profit margin, even after accounting for bad debts and operating expenses. What's more, with credit-card debt growing at 15% a year for the past twelve years, only a nitwit could fail to make money in this market!
Of course, when you're lending money, it's also crucial to ensure that your borrowers pay up on time. Here are three tricks that card firms use to make us pay up earlier - each of which costs us money!
1. Shorter interest-free periods
In the Eighties, when I first started work in financial services, almost every card offered interest-free credit for 59 days. In other words, if you bought something just after your latest statement was produced, you'd have 28 days from the date of your next monthly statement to pay off your bill in full. If you didn't pay up in full by day 59, you'd be charged interest, usually from the date that each transaction hit your account.
These days, more and more card companies are giving shorter interest-free periods to their cardholders. Here are several of the worst offenders:
Shortest standard
interest-free periods | |
|---|
| Card issuer | Standard
interest-free
period (days) |
| Egg | 45 |
| HSBC (Classic Plus) | 45 |
| Bank of Ireland (Moneyback) | 46 |
| Cahoot | 46 |
| Co-op Bank and Smile | 46 |
| Nationwide BS (Cash Reward) | 46 |
So, Egg cardholders only have two weeks to pay after their statement arrives. However, as an online bank, Egg sends monthly statements by email, so at least they're not held up in the post!
2. Payment dates that fall on weekends
One thing I've noticed is that my payment dates seem to fall on Saturdays and Sundays far more often than they should. By chance alone, two-sevenths of my payment dates should fall on a weekend. However, checking a stack of my statements, I discovered that the majority of my payments fall due on a weekend!
Naïve readers would put this down to pure coincidence, but one hardened ex-industry cynic knows that this is no fluke. Card issuers do manipulate our payments so that they fall on a weekend, simply because it improves their cash flow to receive our payments on a Friday and not the following Monday. The head of database management for one of the UK's biggest card firms admitted this to me this a few years ago!
3. Fines for late payment
If you do slip up and pay late, woe to you! In recent years, card companies have been hiking their fines for late payment, exceeding your credit limit and bouncing payments. Expect to pay £25 or so for committing one of these offences. Yikes!
To avoid these problems, I've switched to paying all my credit-card bills by Direct Debit. My main "purchasing" card gets paid off in full every month. On the other hand, I pay only minimum monthly repayments on my four 0% cards, because I'm not paying a penny in interest on them. Learn more about the joy of 0% cards here!
So, if your card issuer doesn't value your custom, it's time to up sticks and switch to a new provider. Over a hundred firms are waiting to welcome you as a cardholder!
More: Why pay interest when you don't need to? Check out the 0% deals in our Card centre!
