Credit Card Comparison Almost Impossible

Making a realistic comparison of credit card deals is all but impossible as many credit card companies do not clearly explain how they calculate interest, Which? has claimed.

While comparing different types of card, such as balance transfer credit cards or cashback credit cards, trying to discover their relative costs is more complicated.

Which? uses the example of two of the biggest providers of credit cards. While the one card is advertised as charging 11.8 per cent, it actually costs more than the 13.9 per cent deal on the other card.

This is due to when the interest is calculated from, says Which?. While the second card calculates interest from when the seller receives payment, the first card charges from the moment of sale - typically a few days previously.

"It's ludicrous that a card with a lower interest rate can cost more than one with a higher rate. Which? wants credit card companies to use one standard way to charge interest so consumers really can choose the cheapest card," said a Which? editor.

The top 20 credit card providers use 12 different methods to apply interest charges to their customers’ accounts. Half of people who own a credit card believe that comparing APR (Annual Percentage Rate) is the best way to tell which credit card is the cheapest but Which? argues that APRs cannot be trusted or used in like-for-like comparisons.

Which? has identified six features, other than interest rate, that determine the cost of credit:

•    Interest free periods
•    End of interest charge
•    Interest calculation
•    Start of interest charge
•    Statement day
•    Interest on interest

Which? is calling for all credit cards to have an unconditional interest free period on new purchases and for daily interest calculation to become more transparent and easier for people to understand.

If you would like to know more about credit cards why not ask AnswerBank Business and Finance.