Many consumers still unaware of order of repayments on credit cards : Credit Card Guide

Many consumers still unaware of order of repayments on credit cards

According to recent reports many consumers in the UK are still unaware of how repayments are allocated on their credit card balances, despite recent controversy over this issue.

Campaign groups recently highlighted how credit card companies were applying repayments to the cheapest balances, such as balances accrued in an interest free period, and are leaving more expensive balances to continue to accrue interest. Officials state that there are many consumers that are unaware of this order of repayments, and collectively this methods of repayment allocation is costing consumers around £500 million a year.

Officials state that the adverse order of repayments used by credit card companies is proving extremely costly to customers, particularly considering that many consumers are unaware of the order of repayments. Many assume that repayments are made in date order depending on when the balance was accrued, but this is not the case, with many credit card companies applying repayments to ensure that they make maximum profit and the customer pays the maximum amount of interest.

Consumers groups have been campaigning in order to get regulators to force credit card companies to make allocation of repayments more transparent to consumers. Officials state that the order of repayments can make even the most attractive deals far more expensive when you scratch under the surface.

He added that this method of repayment allocation can make it extremely difficult for many credit card users to clear their balances, stating: "With a complex issue such as order of payments, providers have a duty to explain clearly to consumers how the way payments are allocated impacts on their efforts to decrease their credit card debt."

Tom Smith
17th September 2007

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