Credit card repayment structures still confusing

A recent report has shown that many consumers that use credit cards are still confused or even unaware with regards to the order in which the balances on their credit cards are repaid from the repayments that they make.

This is an issue that does not affect those that repay their card balances in full at the end of each month, but does affect those that make smaller repayments on their credit cards, often costing them a small fortune in additional interest.

Most credit card companies apply repayments to the balances with the cheapest interest rate attached rather than applying them to transactions in terms of date order. This means that balances with higher interest rates are left untouched for longer, and continue to rack up interest at extortionate rates in some cases.

The issue has already been brought to light in the recent past by campaign groups within the UK, but despite highlighting the issues these groups state that the repayment allocation of credit card balances is still causing confusion.

Because of the order in which repayments are allocated on credit card balances, campaigners state that even the best deals may end up being costly to credit card users that spread their repayments. These groups are calling for more transparency when it comes to providing information to credit card users about the order of repayment allocation.

One official stated: "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."

This method of repaying the cheapest balances first is known as an adverse order of repayments, and is used by many credit card companies in order to make additional money from customers in terms of interest.

Tom Smith
5th October 2007

Recent additions:

• Increased cash back levels offered on Abbey card [03.10.07]
• Youngsters able to get their hands on pre-pay cards [01.10.07]
• Credit Card Users Feel The Squeeze [29.09.07]
• Tap-and-go Debit Cards [28.09.07]
• Many Brits worried about debt levels [27.09.07]
• Greenspan Forecasts Problems For the UK [27.09.07]
• Should minimum credit card age be raised? [25.09.07]

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