Credit card providers have signed up to a new set of principles aimed at treating customers fairly.
From January 1, providers will no longer be able to impose overnight interest rate hikes on their customers, and will instead have to provide 30 days’ notice.
They will also be banned from raising customer’s rates in the first year that a credit card is issued and will only be able to review interest rates every six months thereafter.
Should a provider seek to hike its APR, customers will be allowed to transfer deals, or freeze the account and pay off debts at the existing rate.
At present, more than 10,000 customers have their APR increased every month, according to the UK payment association, Apacs.
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A glaring omission
One key element missing from the list of new principles, however, is the requisite that credit card providers pass on base rate cuts to their customers, meaning customers may yet face higher lending costs.
The base rate has tumbled by 2.5% in the last two months alone, yet credit card APRs have actually continued rising.
As an illustration, statistics from debt charity Credit Action show that the average APR is now 17.9%, or 14.9% above the base rate. Six month ago, the average APR (17.6%) was 12.6% above base.
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- Providers will not raise interest rates if a customer:
- Fails to make the minimum repayment for more than two months
- Already has a repayment plan in place
- Is in "serious discussion" with a debt advice group.
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How to cut credit card costs
A recent study found that almost four million Brits are struggling with mounting credit card debt. If you plastic bills are getting out of control, or if you simply don’t fancy making your bank rich, you need to ensure your debt is cleared as cheaply as possible.
The biggest mistake you can make (next to using you card for cash withdrawals) is to leave debt to rack up interest on your lender’s standard APR.
Rather, switch to a 0% balance transfer credit card and whittle away your debt that way. Considering the average interest rate on credit cards is nearing 18%, the savings will be massive.
The best such deal on the market is still the Virgin credit card, offering 16 months interest free with a 2.98% fee.
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