Credit card interest rates hit 4 year high. What can you do about it?

11th June 2011  

Those of us with mortgages breathed a sigh of relief this week when the Bank of England (BoE) Monetary Policy Committee (MPC) resolved to hold the Base Rate at its all-time low of 0.5% for another consecutive month. But the news for credit card holders is less rosy as when they open their statements this month, many will see that yet again their credit card interest rates have crept up.

Credit card interest rates have steadily climbed in the last 2 years despite the Base Rate hitting rock bottom in March 2009. In a survey conducted last month we see that on a sample of eighteen mainstream credit cards underlying interest rates have climbed between 0.6% and 2% over that period.

The worst hit are customers of the Lloyds Banking Group which now encompasses the Halifax and Bank of Scotland where credit card interest increases were mostly 2%.

So how can the credit card issuers justify these increases at a time when borrowing money is on paper cheaper than at any time in the last 40 years? Well, it’s all about the revenue that they make from their card businesses, and how recent changes in legislation have hampered their ability to make profit.

The new Consumer Credit Directive (CCD) which came into full force on 1st February last has a lot to do with it. One of the main changes this brought to the credit card market was compulsory Positive Payment Order. This means that the way a lot of credit cards operated had to be restructured as the CCD forced the card issuers to allocate your monthly payments in a much fairer way.

Instead of the previously common practice of allocating card holders payments to the balances with the lowest interest first, credit card companies now have to allocate payments to card balances that carry the highest interest first. This, added to increased defaults on card lending due the widespread financial hardship caused by the banking crisis, has mean that the only way banks and credit card issuers can maintain their profits is to put up their interest rates.

So what can you do about your credit card with its eye-wateringly high interest rate if you can’t afford to clear the balance?

The answer is to treat your credit card company the same as you would any other company whose product has risen unfairly in cost. Switch to a different provider, vote with your feet!

It’s a sad fact that in the digital age with 60 per cent of the UK population accessing the internet every day, only 8 per cent of us have ever switched credit card provider after doing a credit card comparison.

Here at Cardchoices.co.uk, we’re pushing hard to get the message out to consumers:

“You don’t have to pay uncompetitive credit card rates”

There are 3 main scenarios where people feel they’re stuck with unfair rates. Here’s what you can do:-

Scenario 1

You have an existing credit card balance that you can’t afford to clear immediately.

In this scenario, take a look at 0% balance transfer credit cards. Choose a new credit card from our list of the best balance transfer deals (make sure it’s an issuer that will accept a balance transfer from your existing card or bank). Transfer your existing balance, the long 0% promotional periods mean you’ll get plenty of time to clear the amount, whilst paying no interest! All the information you need is contained on our balance transfer page.

Scenario 2

You need a credit card to spread the cost of purchases, and you use your credit card as a budgeting tool to deal with the ebb and flow of your household expenses.

Here you need to get yourself a 0% on purchases credit card. Our purchases cards tables currently offer new credit cards that offer up to 15 months interest free on purchases.

Scenario 3

If you’ve read scenarios 1 and 2 and you find yourself in both, you need to look at what we call ‘dual’ credit cards. These are cards that offer 0% promotional periods on both balance transfers and purchases. These are listed in our purchases credit card tables, just look at the ‘Introductory Offer’ boxes on each card to see these great deals highlighted.


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