The era of banks throwing credit cards at their customers is drawing to a close, meaning those with less than perfect credit history may struggle to get their hands on new plastic.
But this crackdown isn’t some social responsibility drive to ensure customers pay less interest. Thanks to a combination of the credit crunch and new legislation that makes it more expensive for banks to offer credit cards to customers who don’t use them, plastic is quickly becoming an expensive commodity.
And as we know through experience, nothing gets banks off their bureaucratic bottoms faster than a threat to their burgeoning revenues.
Pay zero interest on new purchases
Barclaycard introduces stringent rulesBarclaycard, last week announced a massive shake-up to its credit card business in which half a million customers had their credit limits cut.
It says that other customers have been given a ceiling on the amount of money they can withdraw using their card, following evidence that people who use their credit card to take out money are more likely than others to struggle with debt (drawing cash on a credit card is always a bad idea, as it earns interest at nearly twice the rate of normal debt).
The bank also confirmed it is “monitoring existing cardholders’ debts” and tightening the criteria for people applying for cards. So if you are in the market for a new credit card from Barclays, expect to be subject to more stringent rules - and possibly a higher interest rate - as a result of the changes.
Barclaycard, Britain’s largest card issuer with more than 10 million holders, says the move is unrelated to the credit crunch and merely part of its strategy to reduce the number of defaulting customers.
But it has been struggling with bad debt losses for two years without doing anything about it. The fact it is acting now would seem to indicate that Northern Rock’s financial meltdown has made it anxious to cover its own bases.
Get a balance transfer card hereBasel II forcing banks into action
New international solvency rules included under Basel II mean that banks now need an extra capital cushion for unused credit in card or overdraft facilities. This means it costs any bank that offers a customer credit which they do not use will be losing money.
The rules, which come into action on January 1 next year, have also forced banks to rethink their policy on offering credit. HSBC is the first bank to act, contacting all customers who haven’t used their overdraft facilities and credit cards to see whether they still need them, but it is only a matter of time before others follow suit.
It’s all a million miles away from a time when lenders were quite literally throwing credit cards at people, sometimes without the customers even applying for one.
Compare new purchase credit cards hereTime for us to clean up our actBanks have rightly been criticised for fuelling the nation’s debt, lending money recklessly to people in the hopes of maximising profit. But we shouldn’t be so quick to forget that they only put the money on offer - it was us who wholeheartedly embraced the idea of spending money we didn’t have.
Regardless of their motivation, banks and lenders are tightening their lending policies and clamping down on easy credit. Isn’t it about time we started cleaning up our act, too? Here’s a quick breakdown of some of the best cards to suit your financial situation:
- For balance transfers: If you’ve got debt on your credit cards that is racking up interest, or your existing interest free period is about to expire, then the
Virgin Mastercard is one of the best cards on the market, offering 15 months interest free with a 3% fee.
For those who don’t want the hassle of switching constantly there are cards offering a lifelong low rate on transferred debt.
Sainsbury’s Mastercard is one of the best in this category, with a 5.9% rate.
- For new purchases: If you’ve got some substantial outlays coming up, make sure you don’t pay interest on that debt.
Sainsbury’s Mastercard offers a handy 12 months interest free on new purchases.
Earn tax free interest on your savings
