It is somewhat confusing that the word “credit card (Kreditkarte)” in Germany is used as a synonym for the Visa card or MasterCard. Whether the plastic card is combined with a revolving account on which the credit card debt is accumulated or not.
Credit card accounts and therefore credit card debt exist according to the US-American model in Germany, but they are only offered by a few suppliers and are used accordingly little. With this, German banks choose a consumer-friendlier way than many foreign competitors.
Following, you can find the different types of credit cards and their functioning, as well as the requirements for the successful application. With this information, you will have a good basis to make your decision when selecting your credit cards in Germany.
6 Main categories of credit cards
There are six main categories for distinguishing credit cards:
- at a bank with current account or at a credit card company
- prepaid, debit, automatic billing or revolving
- with or without insurance package
- type: Visa credit card, Mastercard or American Express
- colours: Gold, Platinum, Black
- free or annual fee
1a) Credit card at a bank with current account
In Germany, the credit card is used mostly in combination with a current account (Girokonto). This has different practical advantages:
The creditworthiness of the customer is known
Through the current account, the bank knows the creditworthiness (Bonität) of the customer and provides a corresponding credit line.
Automatic billing on the current account
The credit card transactions (Kartenumsätze) are automatically settled after the clearance of account (Rechnungsabschluss) with the current account. Until then, no credit interest applies. The loan is interest-free until the clearance of account.
However, the accounting periods (Abrechnungsperioden) differ from bank to bank (DKB: 1 month, Comdirect: 1 month (until 2105 it was still 1 week), ING-DiBa: 1 day – just to mention the conditions of the market leading direct banks).
Through the automatic billing, the customer saves the transfer of the credit card billing amount. This way, the customer can never become a victim of the extremely high credit card interest trap. If the current account should not have sufficient funds, then there will only apply the much more favourable overdraft interest.
Everything from a single source
With a combination of current account and credit card, one has a partner and only one point of contact for both financial products. This bundling is appreciated by many German citizens.
Requirements for a successful credit card application:
Most banks require a place of residency within Germany and a regular salary payment. Some direct banks are less strict when the customer’s creditworthiness is rated as good to very good.
One obtains the combination of current account and credit card at an Internet bank the easiest way, as it is part of their business model to make money out of the credit card transactions (interchange fees from trading).
Both banks offer their current account and credit cards for free. If the creditworthiness rating is still not good enough or there are only few creditworthiness entries (for example, if one moved recently to Germany), then one has the possibility to get the prepaid version at Comdirect.
Comdirect is ideal for new arrivals in Germany
All other features, such as withdrawing cash fee-free at the corresponding ATMs, apply to the prepaid version as well as to the “true” credit card.
Banks with branch offices often charge a yearly fee for the credit card. At some, this fee can be reimbursed through minimum transactions at the end of the year. Experience also shows that retail banks are reluctant when awarding credit cards. Sometimes, it is required to receive a regular income of a certain amount, which must be transferred to the current account.
1b) Credit card from a pure credit card company
On the other hand, there are people who prefer that not one single bank has a complete overview of the personal finances and out of this reason, they separate the current account and credit card account.
Separating expenses (credit card) and income (current account)
Pure credit card companies (Kreditkartengesellschaften) are often foreign companies, who have a license in Germany. One applies almost always online for the credit card. Then a credit check by the provider takes place and one receives the credit card by mail and a letter with the initial credit line amount.
Often, foreign credit card companies operate according to the US-American model. This means that the credit line increases automatically, depending on how one exhausts the limit and how punctual one transfers the minimum rate of the monthly credit card statement or – recommended in order to not miss the payment date – transfer from the current account by direct debit (Lastschrift).
Credit card account with revolving feature
The cards work so that all credit card transactions on a credit card account go into the red. During the first time, the credit is interest-free, depending on the provider up to 2 months. If one settles the credit card account on time – so not only paying the minimum rate, but the full amount – then everything is free for the customer.
One has to know the consequences of the minimum amount …
If one only pays the minimum amount, which is sometimes only Euros 25, then one accumulates credit card debt on the credit card account. This is great business for the credit card company, because the credit interest will be charged from the date of the transfer. This interest of credit card companies is much higher than a bank loan.
Credit Card Debt
Such credit card debt can be postponed for years, as long as one pays the monthly interest on time. This pleases the credit card companies, because it is their business model.
Approximately 1/3 of the customers postpone a huge sum of credit card debt. The other 2/3 mainly uses the partly free service, at least the interest-free period up to the credit card statement and the date of payment.
With a credit card loan, one can bridge a financial drought well, as the credit line has already been approved and one can pay back a loan at any time – to save the quite expensive interest rates.
Cash withdrawals with the credit card
Some credit card companies offer to withdraw cash (Bargeld) from the ATM (Geldautomaten) free of charge. However, you should consider an important difference: Some providers start to calculate the expensive loan rate already on the day of the cash withdrawal and not like cashless card transactions that start after the interest-free weeks.
At the time of the creation of this page, the Barclaycards “New Visa” and “Gold” consider cash withdrawals as common card transactions, so that the cash withdrawal at the ATM is really free of charge and interest-free for several weeks.
Conditions for a successful application:
Place of residence in Germany, a regular income and a moderate to very good creditworthiness rating.
2) Credit card with and without credit line
2a) Prepaid credit cards
The term “prepaid credit cards” is a contradiction in itself, as a previous money deposit on the credit card account has nothing to do with a loan. However, the rechargeable Visa credit cards and MasterCards are colloquially called “prepaid credit card” in Germany.
Often, new providers come to Germany from abroad and offer different credit cards. Sometimes, the brands disappear after some time from the market. Therefore, it is difficult to give a permanently valid overview.
The service of prepaid credit card providers in Germany is at the international quality standard. The credit card service of German banks is generally better.
In combination with a current account, there is also a number of German banks that offer prepaid credit cards. Herein, the annual fees and the further conditions are favourable. However, you will become a customer of a bank that checks the customer more into detail as a prepaid provider:
New: PayCenter offers a full Online current account with MasterCard. Both are on a credit basis, and therefore no creditworthiness check applies. The success rate for the account and credit card application is more than 99%.
2b) Credit card as debit card
Again, this is no real credit card within the meaning of the name, but said colloquially. The Visa credit card and MasterCard as debit card are relatively rare in Germany, because the normal bank card (presented in “Current account and banking in Germany”) assumes this function more favourable.
The Visa card of the ING-DiBa in Germany is a debit card. Its transactions will be debited immediately from the current account.
2c) Credit cards with automatic billing
… is found mainly in combination of a credit card with a current account as presented in Point 1a).
If one is a customer at a credit card company or would like to become a customer there, one can also order the automatic billing. One simply arranges with the credit card company that the credit card balance should be drawn at the date of payment by SEPA direct debit (SEPA-Lastschrift).
This way, one saves on expensive lending rates. However, one must ensure that the current account disposes of enough money or credit line. Credit card companies do not like the “bursting” of a direct debit at all, because the manual processing is expensive and they become worried about the repayment.
2d) Credit cards with credit debt collection
This system is possible at the credit card companies, which are presented in Point 1b.
At Barclaycard, one can “train” the credit line from sixth month of customer relationship.
It works like this: Take advantage of the credit limit between 90 up to 95% and pay the amount back on time. The credit card company will automatically increase the limit. This process can be repeated several times. I was able to increase my limit this way up to a high four-figure amount.
3) Credit card with and without insurance package
Why should one combine a payment card with an insurance product? The motivation of the financial industry is to earn more money from the customer. Many customers are willing to pay a higher annual fee for the credit card, if they feel that they get help in an emergency or replacement for damage.
For some customers, who are e.g. travelling a lot, insurances as
- Breakdown service for rental cars
- Travel cancellation insurance
- Abroad travel health insurance
- there are further risks insurances, depending on the provider …
However, the trade press has been warning for years that the insurance conditions (Versicherungsbedingungen) are usually not ideal for the customer. Travel and health-related risk insurances should rather be concluded through a good insurance broker, because he/she selects the best for the customer out of several providers. This could be different insurance companies depending on the customers’ requirements.
Insurance is mainly externally
Additionally, credit card companies do not secure the risk for themselves, but mediate their credit card customers to an external group insurance. It case of the damage event, one does not contact the credit card company, but an external insurance company. Sometimes, these are even foreign companies.
They will check first – this is common for insurance companies – whether there is a reason that they do not have to pay. Due to the insurance conditions through credit card companies, this test often favours the financial sector. Bad for the customer.
Personal note: I myself made the experience at a Platinum credit card that included breakdown service, however, with a reason for exclusion: Within the 50-kilometer radius from the place of residence, there is no service, if the vehicle is defective. But where do most breakdowns occur? The answer: Nearby the place of residence, because one usually stays there. Even at my request to simply arrange the breakdown service and bearing the costs myself, no one felt capable of helping me.
Recommendation: Splitting the bank and insurance products
Insurance packages are often found in credit cards with the additions “Gold” or “Platinum” and, of course, also at special travel credit cards with annual fees. The insurance package is usually bought through a higher annual fee for the credit card.
Most credit cards are exempt from insurance in Germany. A free credit card provides no insurance.
4) Credit card brands
Most wide-spread are the credit cards of the companies Visa and MasterCard, as these are issued in cooperation with countless banks. Similarly, their acceptance is relatively high in Germany.
However, one cannot pay everywhere with a credit card and sometimes one can find signs stating “Card payment possible from Euro 10” in the stores. The background is that the fees for a credit card payment must be paid by the payee. These are usually between 1% and 3% at Visa and Mastercard.
Visa and MasterCard are market leaders
American Express is partly still expensive. It is therefore accepted much less in stores. Additionally, American Express is only rarely offered by banks. Usually one must become a customer directly with a credit card account.
In Germany, the customer has to pay for almost all credit cards of American Express. And the service standard of American Express is at international average. German banks offer not always, but very often a better service.
Most favourable for the stores are payments using debit cards, which are most common in Germany too. Here, the fee is usually less than 1% (new: 0.2%) of the card transaction.
5) Credit cards: Gold, Platinum or Black Card?
In contrast to the USA, one does not have to “work for” or “earn” the credit card “colours” through years of payments.
Whoever is willing to pay an overpriced annual fee for a platinum card, will get it. Even at American Express that officially requires income amounts for specific credit cards, check this so laxly that one can specify almost any amount.
When presenting a gold or platinum card, no special status is granted. The card reader and the cashier do not pay attention to the colour of the card.
Colour of the card has no particular importance
Often, it is one’s own feeling that one deserves to have a gold or platinum card. Marketing departments of card companies spend millions for this … apparently it pays.
A black credit card does not have the same meaning in Germany as in some other countries. There are several providers of prepaid credit cards that have an elegant black design. However, paying a high annual fee for this is a waste of money, unless the personal feeling of the customer improves as a result.
6) Free credit card or with an annual fee?
Strangely, the most retail banks charge their customers an annual fee (Jahresgebühr) for providing a credit card. At direct banks, the credit card is provided in almost all cases free of charge in addition to the current account.
As previously described, banks earn money through the use of the credit card, even if the cardholder does not know about it and it does not appear on the card statement.
Whoever wants to have a credit card with credit line for cashless payments and can waive on extras, such as an insurance package, will find enough offers without having to pay for the credit card.
There are plenty of offers without credit card fees.
After the establishment of free credit cards at direct banks (Direktbanken), the major credit card companies have followed this example and offer now a credit card without annual fee too.
At Barclaycard, this is the “New Visa” and at American Express the “Payback Card”. On the website www.gebuhrenfrei.com, the Luxembourg Advanzia Bank does provide a free credit card for customers in Germany. Make sure to read especially the fine print.
Prospects for the credit card market in Germany
The contactless payment using credit cards will increase in the next years in Germany. The industry is currently investing in the corresponding infrastructure.
Whether virtual credit cards that are mainly compatible for Internet payments will play a significant role in Germany, remains to be seen.
It seems that the future for scaled-down current accounts on a credit basis is more successful, as their use is possible simply or solely through the smartphone. In combination with a free prepaid credit card that entitles you to a free cash supply, these offers will have a high demand especially among the younger clientele. One of the first providers is number26.
Summary: Credit cards in Germany
In Germany, the term “credit card” is not always meant for a card with real credit line. The best known brands are Visa card and MasterCard. Payments with these credit cards increase year by year, however, they are still not universally accepted.
Through some Visa credit cards and MasterCard, one can withdraw cash free of charge from an ATM. Similarly, free (without annual fee) credit cards could establish in Germany.
You can live in Germany without a credit card, but you do not have to!
American Express only plays a minor role in Germany. The most popular is the common debit card, which is also known as bank card or Girocard.