Nationwide make credit cards 'fairer'
PEOPLE with Nationwide credit cards used for balance transfers will no longer be penalised for buying things with the same card, as long as they pay off those purchases in full.
In addition, anyone going over their credit limit will no longer be charged for doing so.
The building society say the changes will save customers an estimated £2.6 million a year as a result.
But that's small change compared with the savings they say people would make if other card providers did the same - an estimated £110 million a year.
Transfers versus spending
It's one of the first rules people learn when getting to grips with credit cards: don't use a balance transfer card for purchases.
There are a couple of reasons for this, but the important one as far as Nationwide are concerned is this:
People know that to keep borrowing and spending on their credit cards as cheap as possible, they should pay off the balance in full every month.
But balance transfers and purchases on one card are often considered together when the end of the month comes around and payments are due.
So even though the cardholder pays off all of their purchases in full, they still have an outstanding balance on the card.
Purchases versus total balance
Say someone has a 0% balance transfer card (table) they spend £1,000 on the card in a month, and pay off £1,000 at the end of that month.
Because the total debt hasn't been cleared, the part of it that isn't covered by the 0% offer will start to incur interest - which on a card with a pretty standard 18.9% purchase rate will amount to £23.20 in the first month.
So Nationwide say they're going to start treating the two balances - transfers and purchases - separately.
The cardholder spends £1,000 as above - and as long as they pay off the purchase part of the debt in full, they're considered to have met their obligation and won't be charged any interest.
Of course, if they only pay off the purchase part of the debt, they're not going to make any impact on the balance transfer part of the borrowing.
So wise cardholders will pay off their spending plus extra to cover the balance transfer within the 0% period.
That's an important point to remember, as the whole point of a balance transfer is to spread the cost of repaying the borrowing, not to put it off indefinitely.
'Fairer' credit cards
Nationwide have a reputation for beating the competition to implementing "fairer" credit card rules.
They were one of the first card providers to introduce the positive order of payments - ahead of the more boastful MBNA and Virgin Money - and allocating money paid towards credit card debt to the most expensive part of that debt first.
They also offer a "soft quote" facility for people thinking of applying for one of their cards.
As well as giving people the chance to find out whether they'll be accepted or not without the enquiry appearing on their credit histories, the tool gives them a good idea of the likely credit limit and APR they'd receive before they commit.
And while most card providers will automatically terminate any introductory offer or rate upon a customer missing a minimum payment, Nationwide offer a grace period.
This last difference is a big one: research suggests that around a fifth of people who take up balance transfer offers have their promotional rate taken away for breaking terms and conditions - with at least a third of them failing to make the minimum monthly payment.
'More changes coming'
Nationwide will still charge cardholders the (industry standard) £12 penalty fee for missing a payment - but at least those customers won't also be bumped up to a much more expensive rate of borrowing overnight.
However, the building society are scrapping one of the industry's other standard penalty charges, incurred when cardholders go over their credit limits.
Nationwide's Chris Rhodes said ditching the over-limit charge was "in recognition of the fact that people do unintentionally exceed their limit from time to time".
They've also said they have "no current plans" to withdraw or reduce the cashback offered on their Select credit cards - a dig at various other providers who are scaling down their rewards schemes in the face of new restrictions on interchange fees.
That's good news for Nationwide's customers, as is the suggestion that the building society is continuing to "look at ways it can help credit card customers with more changes planned for later this year".
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