Survey shows many Egg credit card customers were not high risk
After announcing that they were withdrawing the credit card facilities of 161,000 customers recently, Egg official said that the reason for the action was because of the deteriorating credit profiles of affected customers.
According to Egg those affected by the decision were failing to make the minimum repayment each month, and were therefore classed as high risk and were unsuitable to lend money to.
However, a recent survey has shown that nearly half of those affected by Egg’s credit card withdrawal had never missed a payment and had good credit.
The survey was conducted by This is Money, and consumers were asked whether they had ever missed a repayment on their credit card. Although 57% said that they had missed repayments, the remaining 43% said that they had never missed a payment. Many of the customers on the Egg hit list have been puzzled as to why they are having their credit withdrawn.
The Treasury Select Committee, and the Labour consumer affairs minister Nigel Griffiths, have filed complaints over the actions of Egg, and these are now being considered by the Office of Fair Trading with a view to launching an investigation.
Mr Griffiths recently stated: ‘I am very pleased about that. It shows just how seriously they are taking it. I cannot tell you the number of complaints I have had - they just keep flooding in.’
After making the announcement one Egg official said: “We are sorry some customers are upset after receiving notification we are ending their credit card arrangement, but they are people we do not feel it is appropriate to lend any money to.” He went on to state: “The decision was taken after an extensive one-off review of our credit card book following acquisition by Citigroup.”
Too many credit cards could lead to confusion and credit problems
According to a recent report having too many credit cards on the go could result in confusion for some credit card customers, and this could leas to oversights such as missed and late repayment, which, of course, result in hefty fines and fees being charged to the customer’s account, as well as black marks going on the credit file.
The warning comes from the Consumer Credit Counselling Services, and follows a recent report that shows Brits have the highest number of plastic cards in their wallets reflecting just how reliant the nation has become on credit cards.
Credit cards have always been popular in Britain, and according to the report the past soft credit conditions have made it easier for Brits to get their hands on multiple credit cards.
This has added to the personal debt mountain that is causing so much concern in Britain, and has resulted in an increasing number of Brits holding several credit cards.
However, with credit conditions now becoming tighter due to the credit crunch Brits will not find it so easy to get another card, and in fact some cardholders – namely around 161,000 Egg credit card customers – have even had their credit cards withdrawn.
An official from the Consumer Credit Counselling Service stated: “In the UK we have a far more liberal approach to credit in many other European countries - the market has been liberalised since the early 1990s and really the credit card companies have been doing a lot of work, we’ve got a very competitive credit card market.”
He added: “There are plenty of reasons why people may have numerous cards - people might have one for work, for example, or you could have one which has got a transfer balance on it with a low interest rate, and then another one for purchases and that kind of thing…it can become confusing.”
Outstanding credit card balances jumped last month
There was a significant jump in the average outstanding credit card debt last month, with outstanding credit card balances jumping by an average of 17% during the month as a result of festive spending in the previous month.
Over the course of the month the bills that customers had clocked up over the Christmas and New Year periods hit their credit cards, and this saw their outstanding debt rise by a significant amount on average.
The average credit card balance in January went up to £2168 according to a recent report. This reflected a rise from the December figure of £1842.
However, despite the rise in the level of the average outstanding balance the rise was still lower than that seen in previous years, which may be indicative of the effects of the credit crunch, which has seen consumers cutting back on their spending either to exercise caution or simply because they cannot get the additional credit that they need due to tighter lending conditions.
One industry professional stated: “There is a clear trend of falling outstanding credit card balances over the course of the last three years. The question is whether this actually reflects consumers clearing debts or merely a rescheduling of them. It’s far less easy now for so-called rate tarts to continue to hop from one credit card deal to another but what we are witnessing is a rise in other forms of borrowing, notably secured lending.”
He added: “Some consumers will be paying down their credit cards but others have been rescheduling expensive high-interest rate short-term credit card debt onto longer, structured loan products with lower interest rates. This means they will have been able to reduce their monthly outgoings but potentially at the expense of a much larger interest rate bill over the whole course of the loan repayment.”
Free balance transfers available on Capital One platinum card
Consumers looking for a good deal on a balance transfer card may be able to benefit from a new offer that has been launched by Capital One providing they are able to repay the balance on the card fairly quickly.
Most 0% balance transfer credit cards charge a transfer fee of 2-3% of the total amount transferred onto the card, which means that some consumers have to pay out a fair amount of money to transfer their balances and avoid paying interest.
However, Capital One is now offering a fee free balance transfer on its platinum card with a six month 0% period, within which consumers can repay the balance without being charged any interest.
For those able to make fairly large repayments each month this could prove an effective way to avoid transfer fees and enjoy interest free credit on their transferred balances.
As withy most balance transfer cards consumers that wish to apply for the card will need to have a very good credit rating and history, as well as meeting other eligibility criteria as set by the lender.
One industry official stated: ‘Balance transfer fees have increased with many being uncapped, lenders have tightened up their credit scoring criteria, so you need almost spotless credit history to get your hands on one of these deals. If you do, the interest free limits will be smaller than they used to be.’
Many 0% balance transfer credit cards now offer longer interest free periods than in the past, with some even offering fifteen months of interest free credit. However, as the interest free periods have grown longer the transfer fees have become more expensive.
More evidence of Brits’ reliance on credit cards
A recent poll has confirmed that Brits have become reliant on credit cards over recent years, with the average Brit holding more credit cards than consumers in any other Western European country.
According to the result of the poll the average Brit has 1.4 credit cards to their name, whereas even in the countries that came in at second place in the poll, Norway and Ireland, the average consumer only had 0.7 credit cards.
Following the results of the poll, which was conducted by Datamonitor, one industry official stated: “In the UK, consumers use debit cards for day-to-day spending much like their European counterparts, but are increasingly using credit cards as borrowing tools, applying for new credit cards to transfer an outstanding balance and to take advantage of interest-free offers.
In most other countries, consumers do not view credit cards as a borrowing tool and, as a result, they are not so popular.”
Brits also topped the poll for carrying the most plastic in general in their wallets.
The results showed that the average Brit carries 2.8 plastic cards in total, which is a rise from the figure of 2.4 plastic cards in 2002. Norway came second, but was again far lower than Britain, with the average consumer carrying 2.3 plastic cards.
France came in at the bottom of the poll, with the average consumer carrying just one plastic card.
A number of recent reports have suggested that consumers in Britain have become more and more reliant on credit cards, and much of the personal debt mountain in the UK has been blamed on credit card debt.