A 0% card for damaged credit -- too good to be true?
By Emma Lunn
Cards offering 0% on balance transfers are generally aimed at those with squeaky clean credit records -- and out of reach for consumers with anything less.
But that may be starting to change. Capital One recently introduced a 0% balance transfer card that it's advertising as being accessible to those who've missed payments, had county court judgments (CCJs) against them or even been declared bankrupt.
But is it a good deal?
"0% deals on credit cards are usually only available for those with good credit scores," says Una Farrell of debt charity StepChange, "So, while it is welcome that there are now a few similar deals for those with weaker credit scores, they need to be approached with extreme caution."
Capital One's Balance Card offers 0% interest on balance transfers until June 2013 for people with an "average" to "good" credit history -- "even if you have had CCJs or defaults in the past," its advert reads. Compare that with balance transfer offers from other major credit card providers such as Barclaycard and NatWest, which prefer "good" to "excellent" credit ratings.
The specific criteria to qualify for the card are comparatively lenient as well. Capital One's application criteria require that borrowers haven't had CCJs or defaults, or declared bankruptcy, in the past 12 months -- but credit issues older than a year won't disqualify you. Compare that with MBNA's balance transfer credit card requirements, which discourage applicants who have had any CCJs in the past five years. Lloyds TSB, meanwhile, requires applicants to be free of any CCJs for its balance transfer offerings.
Before assuming that Capital One's offer is the answer to your credit woes, check out the card's small print before transferring an existing balance to it. First off, the card has a balance transfer fee of 3%, which means transferring a balance of £1,000 would cost £30. Such a fee is on the hefty side compared to other balance transfer offers on the market. Balance transfer fees range from 1.5% to 3.5% -- and fees near 3% are generally associated with perks such as long 0% balance transfer periods of at least 20 months. Capital One's card offers just six months of 0% APR. Compare that with NatWest and Barclaycard, which are offering cards with 12 months interest free for transfer fees of 1% and 0.9%, respectively.
Second, the purchase rate and the go-to rate when the balance transfer period comes to an end are also both relatively high at 34.9%. That's more than double the national average interest rate of 17.3%.
Making the card work for you
Because of the short balance transfer fees and high go-to interest rate, you will need to be disciplined if you take out this card. Make sure you can pay off the transferred balance within six months, and don't spend on the card.
"Not only are there transfer fees, the period for which you are charged 0% interest is relatively short," Farrell says. "... People should only consider applying for one of these cards if they have a plan on how they are going to make the most of the 0% period and what they are going to do when it ends."
If you can do that, the card may be a savvy mood for those with slightly damaged credit histories who want leave high-interest debt behind them.
Published: 14 February 2013
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