Credit cards are becoming increasingly hard for consumers to get their hands on and are costing more as providers raise their rates to stave off the credit crisis.
People who borrow on their credit card are suffering at the hands of the squeeze on liquidity as providers have increased the interest rates they charge by an average of 0.56 per cent in the last six months, from 16.56 per cent to 17.12 per cent, according to MoneyExpert.com.
Despite the Bank of England cutting the base rate three times over the last three months – which has seen it drop from 5.75 per cent to five per cent – research has shown that rates of borrowing have continued to rise, and balance transfer fees have gone up even more, by 0.83 per cent, from 15.12 per cent to 15.95 per cent.
Those who think that they will simply move from their current provider to a more competitive deal might have to think again, because lenders are not only increasing interest rates but are also making it harder to secure credit by tightening their criteria for new customers to avoid problem borrowers who cannot repay their debts.
MoneyExpert.com has found that credit card
companies have already accumulated £3.1 billion by reducing customers' credit limits to curb their spending.
"Everyone is finding it more difficult to make ends meet as the cost of living rises. People will want to turn to credit and that means splashing the cash on the plastic." Sean Gardner of MoneyExpert.com said.
"Most of us would normally seek out a new zero per cent deal to tide us over the bad times, but with lenders playing a cautious game getting one of those cards is more difficult than it used to be. You'll need to convince the card company that you can afford to repay your debts.
"This means more of us will have to use our current credit card and if the zero per cent deal has expired you'll be borrowing money at a rate of around 16 per cent. So be careful what you spend on the plastic because the interest will soon mount up."
Meanwhile, Nationwide has urged credit card companies
to make customers aware of the order in which they are repaying their debts, because most providers will clear the cheapest debts first.
All credit card companies will soon have to include this information on statements, but Nationwide suggests that they do so now, because until the new Department for Business, Enterprise and Regulatory reform rules comes into affect, customers could have paid out another £500 million in interest.
Jeremy Wood, divisional director at Nationwide, is calling on the industry to "do the right thing for consumers and implement the change now," rather than waiting until the October 2008 deadline to implement the changes.
"Most providers apply payments to the cheapest debt first making it more expensive for the consumer and more profitable for them." he said. "What seems like a good deal at first can become unnecessarily costly for cardholders unless they clear their balance in full."
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