Credit card companies to rake in profits over Easter
With schools having broken up for the Easter holidays, many consumers in the UK could be heading off for a spring break to one of a variety of European destinations.
This is likely to be good news for credit card companies and banks, as they are set to rake in the cash from charges and foreign transactions fees resulting from consumers spending on their plastic whilst they are away.
According to a recent report card companies and banks could rake in around £180 million over the Easter period, and this is based on an average spend of £500 per person over the holiday.
Four million Brits are expected to go off on their breaks armed with their plastic cards over the Easter holiday, and industry experts have urged those looking to had off on a break to be aware and careful about the charges that they could incur through making transactions and withdrawals on their cards.
One industry expert stated: “A credit card with purchase protection of 90 or more days is the best option for purchases overseas. Not only do the credit cards from the Post Office, Nationwide and Saga offer this, but they also have zero per cent purchase offers of between three and six months and don’t levy foreign exchange fees in Europe. This is a far better prospect than their rivals that charge between 2.73 and 3.0 per cent.”
Another industry official added that hidden charges such as these could quickly result in extortionate costs for consumers, stating: “People who are planning to go abroad this Easter should be aware of the hidden charges that most card providers impose, which are both costly and unnecessary.”
Future financial difficulties for many credit card customers
As part of a nationwide cull many credit card companies have recently slashed the credit limits on the cards of many customers, reducing the limit to just £100 above the existing balance.
The card issuers did not inform customers of their intention to cut limits, stating that they did not want to give the customers the opportunity to go out and spend on the cards in order to increase their existing balance and therefore their credit limits.
It has now emerged that many of these customers could face future financial difficulties, as the reduction in credit limit could have an adverse effect on the consumer’s credit file.
Lenders look at how close to their credit limit card customers are when deciding whether to offer finance, and the way in which the credit limits have been cut means that affected customers will be extremely close to their credit limit until they repay their balance.
An official from a credit reference agency stated: ‘These changes will show on your credit report and could have implications. Lenders can assess this information any way they wish. If you are only a couple of pounds below your balance that could ring alarm bells.’
Another official said: ‘The credit limit cut does create an interesting conundrum. The credit scoring models don’t take into account limits cut by creditors to minimize their own risks. So a limit cut that leaves the debtor essentially maxed out can only protect the lender and harm the debtor. This seems grossly unfair since the debtor isn’t given ample warning or notice to clear the decks and instead is caught by surprise.’
Credit card customers warned about dangers of 0% balance transfer cards
During the first quarter of the year many consumers try and deal with the debts that they have accrued over the Christmas period by transferring their high interest credit card debts onto 0% balance transfer cards in order to avoid paying interest on their balance.
However, many end up paying over the odds simply because they fail to compare the different terms of these cards or decide to spend on the cards as well as transfer their balance.
Industry professionals are now urging consumers to make sure that they get the right card to transfer their balance, and that they avoid spending on the card.
There are a number of things that consumers should look at when looking for a 0% balance transfer card. Firstly, it is important to look at the interest free period offered, as the longer this period the more time you will have to repay the balance on your card without being charged any interest.
Another thing to look at is the transfer fee charged. With 0% balance transfer cards you are charged a fee that equates to a percentage of the amount that you are transferring, and this fee can vary from one provider to another, although it is typically between 2-3% of the total amount that has been transferred. It is important to check this so that you do not have to pay too much to transfer your balance.
It is also important for consumers not to spend on the card. Many 0% balance transfer credit cards offer a shorter 0% purchase period, but any balance accrued from purchases gets trapped behind the transferred balanced, and all repayments are applied to the transferred balance leaving the purchase balance to accrue interest.
One industry official stated: ‘The main message for borrowers transferring a balance is always to read the small print and check out the way interest will be charged if you intend to spend on the card. Some cards offer a 0% deal for balance transfers and new purchases - but the majority impose different rates on the transferred balance and new spending. If borrowers know they need to keep using a credit card, it may be preferable to have two cards - one to clear a balance and the other for new spending.’
Many clocked up record sums on credit cards in 2007
Although Christmas spending on credit cards was down on previous years in 2007 a recent report has shown that there was a sharp increase in credit card spending in the latter part of last year, with over £32 billion being spent on credit cards in the last three months of the year, which was the second highest figure on record.
During the same period close to £60 billion was spent on debit cards, which was the highest figure on record according to industry officials from APACS.
Officials from the charity Credit Action are concerned that credit card debt is on the increase. Although many consumers have vowed to cut back on their credit card spending due to the effects of the credit crunch and strained household finances, rising costs have forced many to pay for day to day purchases and even make mortgage repayments on their credit cards in order to stay afloat financially, and debt officials state that this could prove to be very dangerous.
A number of household expenses have risen over recent months, and this includes the cost of petrol, food costs, and energy price hikes, all of which have added to the financial strain that many households are already facing, and have resulted in many having to use their credit cards to pay bills.
Officials state that this is usually the start of spiralling debt problems. Debt charity officials added that those that find they are having to do this regularly need to seek professional debt advice as soon as possible before their financial woes get out of hand.
Last half of 2007 saw credit card switching frenzy
According to a recent report the last six month of 2007 saw a significant rise in the number of people that decided to switch credit cards and providers in a bid to get a better deal on their plastic.
Although credit conditions have become tighter over recent months due to the global credit crunch many consumers still managed to switch cards and providers in the latter half of last year as they battled to get a better deal on their credit card and enjoy more affordable credit.
The report shows that nearly six million customers switched credit cards in the last six months of 2007, which reflected a rise of nearly 400,000 more people switching credit cards compared to the first six months of the year.
Around 12% of cardholders switched cards in the first six months of last year compared to 13% switching in the last six months of the year.
Younger cardholders aged between 25 and 34 found it particularly difficult to manage their finances, with around one in six stating that they had to switch provider to get a better and more affordable deal in the last half of the year.
One industry official stated: “The increase in credit card switching means that people are concentrating more on reducing debts and are less concerned about other product areas. And with bills increasing across the board it wouldn’t be a surprise to see further rises in credit card switching in the next six months as consumers struggle to cope.”
He added: “Credit card companies still offer lengthy zero per cent deals – some as long as 15 months – which means that so-called ‘rate tarts’ will be here to stay. The worry is that consumers will see a zero per cent deal as a chance to service debt rather than repay debt. That is a precarious situation as sitting on debt often leads to spending more elsewhere. It will almost certainly be the case that everyone can save money by switching – or at least stave off hefty interest payments – and we would urge consumers to continue to seek out the best deals.”