Credit card dangers

Whipping around the shops or the internet, passing over card details or tapping a terminal rather than handing over cold hard cash is just so easy, but convenience comes at a price. Here, we demystify some of the more common issues that could set you back.

Credit card fraud

Credit card fraud is big business. Reported losses from payment card, online account and cheque fraud reached £90 million in the first half of 2021 alone, and it’s not a new phenomenon. 

Barclays introduced the first credit card at the tail end of the 1960s. That’s given criminals of all calibre decades to hone their skills and learn the best ways to defraud innocent card holders. 

Your best defence is to be alert if confronted with a scenario that just doesn’t seem right. Of course, this isn’t as easy as it sounds – most of us don't go through our daily lives expecting the worst to happen, whereas the crooks are always looking for an edge. 

That said, there are some tell-tale signs to look for, to at least give yourself a fighting chance to avoid being another credit card fraud statistic.

First off, don’t think of credit card fraud as simply someone stealing your card and using it to make purchases. While this happens, more often than not perpetrators try to gain your card details so they can commit fraud from the safety of their own home. In many cases they want to avoid conflict as much as you do. 

Beware phishing scams

A typical scam involves fraudsters sending out phishing emails purporting to be from your bank, HMRC, charities and other respected organisations. These ask you to pass on your card details. Unfortunately, if you do fraudsters could soon end up spending your money. 

In some cases, the emailer will invite you to click on a link that takes you to a mock-up of the organisation’s website, where you can enter your details, often as part of a ‘security check’.

If you ever get an unsolicited email, especially one asking you to reply straight away – don’t. Fraudsters rely on kneejerk responses, because they know a pause for thought is enough to set alarm bells ringing. 

If you are concerned about your bank or card provider’s security, open a fresh browser page and conduct your own search so you don’t risk accidentally clicking on the fake site. 

Don’t stop short of reporting the contact if you’re really concerned, your credit card provider will thank you for your diligence.

If they’ve called on the phone pretending to be from your bank, hang up and call back using the number on the back of your card or on a recent statement – ideally on a different line or after waiting a good while first. If the issue is genuine, the bank will still be able to help you and it will have a record of the first call.

Other types of credit card fraud

In some cases, the fraudster doesn’t contact you, but goes direct to your card issuer, having obtained your details, perhaps by intercepting a newly-issued card. They call your card provider and change PINs, passwords, the postal address and so on in order to gain full control of your account. 

Cloned card fraud is also a problem. In this case a device is placed over an ATM card slot so the criminal can read your card PIN and other security details. They then add these details to a replica card, which will work just like your real one. 

How to spot credit card fraud

Whether you use your credit card regularly or only occasionally it’s essential to check your statement each month. Not only is this a good way to keep on top of your finances, it’s also the best way to spot suspicious activity that could indicate fraud. If you identity anything that looks odd, contact your card provider immediately to get the card blocked. 

If you have racked up a debt as a result of fraud, you can dispute this loss and shouldn’t be held responsible for it. Certainly, while the fraud is being investigated any interest should be frozen so the potential sum owed doesn’t rocket.

The problem with credit card applications

One of the peculiarities associated with credit cards is that while having a credit card is a good way to build up your credit score, too many applications can have the opposite effect. 

This is because credit card companies will undertake either a ‘hard’ or ‘soft’ credit check to help them assess whether to issue you a card and how much credit to allow. The difference between hard and soft checks is that the former will leave a mark on your Experian, TransUnion or Equifax credit file visible to other lenders. Too many of these will affect your score as they’ll be interpreted as an indication that you are a risk, and that can be a problem if you want to borrow in the future.

So if you're wondering if you'll be accepted, use an eligibility checker to preform soft checks instead of making applications that create hard checks.

Incidentally, it’s not just credit card providers that will run a hard check. Mobile phone contract companies, utility providers as well as potential employers and other financial service firms will also undertake one.  

Unlike a hard check, soft checks won’t leave a mark on your file that anyone but you can see, and there’s no requirement to ask your permission to get one. These are really just background checks, often just to verify your identity. 

The implications of missing payments…

Managing a credit card is a balancing act. On the one hand you want access to credit, perhaps to tide you over until the next pay day, or to cover a big-ticket purchase, such as a holiday. This is fine, providing you make the minimum monthly repayments, but if you don’t, you could be in trouble.

The issue here is that by falling behind with monthly payments you incur more interest, which could see you slip dangerously into debt. The outcome could be you begin to miss monthly repayments altogether, which will result in your level of debt rocketing.

…And how to avoid them

There is more to missed payments than just a burgeoning level of debt. The impact on your health can be immense. Stress and worry can lead to sleepless nights, arguments at home and mismanagement of the rest of your finances can all follow. For this reason, it makes sense to put some steps in place before you risk getting into difficulties:

• Work out what you expect to spend on your card each month and ensure you can cover this sum

• Set up a direct debit to repay at least the minimum payment, and make sure you have enough cash in your bank account to cover these outgoings

• Put a reminder on your mobile or laptop a little in advance of your payment date to review what you’ve spent so you can cover the minimum

• If you miss a payment, pay up as soon as possible to avoid unnecessary charges

Beware of sneaky credit card fees

Good intentions will only get you so far if you fail to pay attention to the small print. Otherwise, it’s fairly easy to end up with a far higher level of debt at the end of the month than you planned for due to charges. 

The main credit card fees to watch out for are: 

Cash withdrawal fees: Credit cards aren’t designed for cash withdrawals, and you should avoid doing this at all costs. Not only will you be hit with a cash advance fee, which is typically a percentage of the total you withdrew, you’ll also start paying a high APR immediately rather than after a 50-day grace period.

Zero per cent fees: Balance transfer and 0% purchase credit cards rightly highlight their key selling point, the lack of interest you’ll pay for moving to one. 

However, if you’re accepted for such a card, it’s important to remember that the enticing 0% deal is time limited and reverts to a far higher rate after the introductory period ends. 

Always set a reminder at least a month in advance so you can shop around for a new deal, or ensure you have paid off the balance before you start incurring interest. 

Foreign use credit card fees: Using your standard credit card while abroad can prove costly. This is because you’ll invariably pay a non-sterling transaction fee of around 3% on all purchases. This level of interest kicks in immediately, so even if you clear what you spend at the end of the month, you’ll be stung for using the card.

It goes without saying that using a credit card for cash withdrawals is a no-no. Instead, use a travel credit card, which comes with far more generous terms, plus a travel debit card or prepaid travel card for cash use.

Persistent debt rules

Credit cards are very handy, but they come with a risk attached. If you don’t watch what and how you spend it’s all too easy to get into financial strife. 

If you really take your eye off the ball, you could even find your finances have spiralled so far out of control that you’re in what’s known as persistent debt. This is the situation whereby you’ve been paying more in interest and associated charges than you’ve been able to repay over a period of 18 months.

At this point your card provider will contact you to discuss how to help you claw your way back to a healthier situation. They should offer you a more affordable repayment plan. But the help doesn’t need to stop there. 

Other measures can include giving you extra time to meet repayments and freezing interest before it grows so far out of control that you’d have no hope of ever repaying what you owe.

Ultimately, though, if you fail to makebig enough repayments, your card will be stopped –with the money you owe switched to a personal loan or similar. 

The good news is that this shouldn’t hurt your credit rating. Less good is that you will lose the use of the card.

No one wants to get into persistent debt, so as soon as you feel things are moving beyond your control, contact your card provider. Explain your situation and ask what they can do to help you. 

You can also speak to a debt charity, such as StepChange, who will be able to give you non-judgmental free advice. Whatever you do, don’t ignore the danger – often the earlier you act, the better the outcome.