Why credit cards are not always what they seem

It can be an expensive mistake, but many of us don't read the small print

Credit cards can be a great way to make the most of your money, but it is easy to get caught out by the nitty gritty of the terms and conditions.

If you miss a payment, or make an error, lenders will often hit you hard with penalties and charges.

So why do so many of us refuse to read the small print? And how can we avoid getting caught out?

To try to find out just why so many of us have a blind spot for the small print, BBC Two's Money Watch programme brought in financial expert Clare Francis, editor of moneysupermarket.com.

She designed a brand new fictional credit card full of sneaky catches, all based on the small print of real credit card deals.

The Money Watch Platinum card had a fantastically low interest rate and some true-to-life incentives, such as 0% deals and a cashback offer.

The team had a large advertising display made, and they printed up leaflets detailing all the tempting offers. Then they launched the card on the unsuspecting public in a busy shopping centre.

Clare Francis was confident that not many people would spot the hidden pitfalls, even though they were clearly shown in the advertising.

"We've put all the small print on the bottom of the advertising display stand and we've got a summary box on the back of the leaflet. So the information is there for people to read but most people probably won't even look at it," she said.

So what are those hidden catches?

Firstly, there is the annual percentage interest rate or APR. The Money Watch card has a very competitive 11.9% APR. But it is a Typical APR - meaning that not everyone who is accepted for the card will actually get that rate.

If someone with an impaired credit rating applies, they might have to pay a higher rate of interest.

And that is not the only catch. The 11.9% APR only applies to purchases. All the other transactions, such as balance transfers and cash withdrawals, are charged at a whopping 34.9%.

Tempting 0% deals

Clare Francis (right) helped launch the fictional Money Watch card

Like most real cards, Money Watch Platinum has a wealth of 0% deals. It offers nine months interest free on balance transfers and 13 months interest free on purchases. But there are traps.

The balance transfers are only interest free if the transfer is made in the first 20 days of opening the account. Otherwise you pay 34.9% on everything.

To qualify for the 0% on purchases, you have to spend £2000 or more in the first three months.

If you do not, you miss out entirely on the interest free period.

Finally there is an enticing offer of 5% cashback on all purchases. But hidden in the small print is the snag - if you do not spend £8000 or more in a year, you get absolutely nothing.

Not so far fetched

Of course the Money Watch Platinum card is entirely fictional. The caveats and catches may seem far fetched, and in fact they are exaggerated - but many credit card deals contain similar wording.

If you do not read the small print and you get caught out then you could end up seriously out of pocket.

Most people will not get into severe debt just because they have not read the small print, but it can make a bad situation worse.

The Citizens Advice Bureau in England and Wales handle 45,000 enquiries about debt problems every week.

Their policy advisor, Alex MacDermott, says that one of their greatest aims is to improve financial literacy.

"We think that it is a really key part of preventing people getting into debt in the first place. It's helping people make informed decisions about the type of credit products that they're entering into."

And there is another really big incentive to read the small print. According to Clare Francis, if we understand the products we are using we can actually make the cards work for us.

"If you read all the terms and conditions and you work out exactly how everything works, you can take advantage of the deals on the credit card and actually save money," she said.

Small print

Although the traps in the Money Watch Platinum card were all presented clearly in the leaflets and on the advertising display most people did not notice them. Of the 30 people who signed up, only a few questioned the terms and conditions.

Some said that there simply is not enough time in their lives to buckle down and read the small print. Others said it was boring and difficult to understand.

The UK Cards Association say that they are always trying improve the small print and make it easier for us to understand, but they also admit that if some customers do not default, the lenders will not make any money, so it is in their interests for some people to make mistakes.

And although the industry accepts that they have a responsibility to make things clear, their spokesperson Sandra Quinn says the onus is on us to read everything.

"You have been given a product and you need to read the information. Now I know that lots of us don't and it is quite tedious stuff. But there's no way of getting around it, you've got to read the small print."

How to beat tough times: Money Watch, BBC Two, 8pm, Wednesday 14 July.