A new credit cards comparison report shows that 68 per cent of UK consumers who have taken out a new credit card in the last three years did not spend any time comparing card deals before applying. Of those questioned, 13 per cent compared the card they chose with three or fewer cards, while 32 per cent based the decision on a recommendation from their bank.
According to the Office of Fair Trading (OFT), "these 68 per cent of consumers reduced significantly their chances of obtaining the best credit card
for their payment needs." customers are particularly lax on the research front when credit cards are involved as they are unavoidably complex. It explains that jargon can be off-putting and legal information is often skimmed over.
Furthermore, it suggests that many consumers select credit cards because of the brand, annual fee, interest-free period, affinity or rewards benefits, and potential future interest rates, all of which can be misleading. As these factors are usually contained within concise advertisements, customers are disinclined to trawl through lengthy contracts and are therefore unaware of penalties or the consequences of excessive borrowing.
The Financial Services Association (FSA) has gone as far to suggest that some credit card providers may deliberately overcomplicate literature linked to credit cards through a "lack of price transparency" in order to dissuade customers from shopping around. A recent FSA report calculates that the average loss incurred if a customer chooses an average priced credit card rather than the cheapest is as much as £137 per year.
The OFT found that the least likely consumers to have carried out any kind of comparison were: those aged 65 and over; people who do not use the internet for personal/leisure purposes; customers who did not consider themselves 'savvy' about financial products and services; people in socio-economic groups D and E; those with just one credit card; consumers with a household income of less than £20,000; and people with a disability.
The report indicates that credit card transactions (purchases and cash acquisitions) totalled £105.2 billion in 2006, up £17.9 billion since 2002. Although fewer credit cards were issued in 2006 than in 2005, balances outstanding on credit cards at the end of 2006 were approximately £66 billion. However, slow growth in the credit card market is expected over the next five years according to Datamonitor.
Also brought up in the report is the issue of unfair credit card charges
, which it says the customer often does not understand. These charges are implemented for going outside of the agreed terms and conditions of the account, such as failing to make a payment.
The OFT is also to investigate the recent decision from internet bank Egg to cancel the credit cards of 161,000 customers. Accounting for around seven per cent of its two million card holders, there are accusations that the company has targeted those who had strong credit ratings and kept up with payments.
© Fair Investment Company Ltd