Has your credit card rate been hiked up? : Credit Card Guide

Has your credit card rate been hiked up?

The credit crunch that has swept across the UK this year has affected many different financial sectors, wreaking havoc in its wake and causing turmoil in the money markets.

One of the many areas of finance that have been affected by the credit crunch, which was sparked in the sub-prime sector of the UK mortgage market, is credit cards. Many credit card providers have hiked up fees, charges, and rates in order to protect themselves from financial losses, and it is, of course, the consumer that is paying the price.

It is not just the effects of the credit crunch that have resulted in many card charges and rates being increased. High bad debt levels have also contributed to these increases. Credit card providers have hiked up charges such as balance transfer fees, foreign transaction charges, cash withdrawal fees, and standard interest rates. Many have also increased stringency when it comes to credit card applications, and there has been a rise in the level of credit card applications being rejected in the UK.

Another way in which credit card companies are trying to minimise risk to themselves is to reduce the credit limits for both new and existing customers. One industry professional stated: "Most lenders are scrutinising customers' credit reports ever more closely and on a more frequent basis. Lenders are under pressure to avoid lending to people who can't afford to repay."

With well over one hundred rate, charge, and fee increases taking place in the space of a couple of months within the credit card industry cardholders could be looking at paying millions of pounds extra a year collectively.

One expert stated: "It seems as if the credit crunch is beginning to cause credit card chaos. 125 fee and rate increases inside two months is quite staggering. With the majority of increases staying away from the headline purchase rates, these fee and rate increases are less in the public view, and often tucked away in lengthy terms and conditions. However they can still make a substantial increase to the cost of using your card."

One of the major concerns is over the fact that many credit card companies have hiked up the interest rate on their cards even for existing customers that have managed their accounts faultlessly. In fact some customers have seen the interest rates on their credit cards double, and experts are now urging these consumers to take action. Consumers are advised that in some cases – although not all – the credit card company may actually reduce the interest rate if the customer calls to complain, so this is something that is worth considering if you have seen your credit card interest rate rise dramatically.

Another option is to switch to another credit card, although consumers will have to watch out for increased balance transfer fees as well as the increased chance of being turned down for another credit card. One industry official stated: 'Firms will look to increase revenue if they are not making enough money. You don't have to put up with this. If you don't like your provider, complain and switch.'

Tom Smith
29th November 2007

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