Why it's good to have a credit card in reserve

Posted in 'Personal Finance' by Richard Catlin

27 August 2009

The number of credit cards available to consumers with a less than perfect or limited credit history is dwindling, potentially reducing the level of protection they get when buying goods or services.

'Sub-prime' credit card issuer Monument is writing to existing card holders to inform them that their accounts will be closed within the next 30 days. The letter goes on to explain that the decision has been taken due to a "change in lending policy bought on by the recession", and that the manner in which the account had been operated - or the individuals' personal finances - were not factors. Card holders will still be able to make payments as they did previously, without having to clear any outstanding balance in full straight away.

Just 5 years after acquiring and rebranding the card from Providian, Barclays sold the majority of the Monument business in 2007 to CompuCredit, an American finance house working in conjunction with Raphael's, a little-known private British bank. It kept the best (or least risky) customers for itself - who were subsequently migrated to become Barclaycard customers.

Monument has not taken on any new customers this year, but has shed a number of employees. It seems likely that CompuCredit is now taking steps to wind up the brand altogether.

This mass-closure of accounts is likely to leave a large number of consumers without access to a credit card. There are still alternatives - the Vanquis card or Capital One Rebuilder card for example. Both carry a high typical APR, but are ideal for people who need a credit card. Typically the credit limits on these cards is low, so they are better used as a payment card rather than a means to obtain credit.

The extra protection that a credit card offers when shopping is likely to be another significant benefit. Under Section 75 of the Consumer Credit Act, 1974, any purchase you make with your credit card (between £100 and £30,000) is then protected should there be a problem. This covers you against things like non-delivery, or more importantly, the company you purchased from going bust. With the high-profile failure of holiday companies such as XL and retailers like Zavvi already - with many consumers losing out completely - it really is invaluable legal protection.

So if you are one of those card holders to be jettisoned by Monument, or if you've simply always been a 'cash or debit card' person, a credit card from Vanquis or Capital One could one day save you a lot of heartache should a future purchase turn into a nightmare.

If you're not sure whether your credit rating could command a cheaper credit card, perhaps with features such as an introductory rate on purchases, check your credit report online before you apply. We'll show you which lenders fit your credit rating, increasing your chances of being accepted.

Check your credit report now.