UK banks may soon be creating a stir with customers who are credit card holders. Virgin Money recently increased its interest rates by 50 percent on credit cards held by more than 15,000 customers.
The bank seems to have forgotten its recent commitment to “provide value to customers,” instead issuing an interest rate ultimatum to thousands of credit card holders. More banks are expected to follow suit to make extra profit while the Bank Rate is low.
According to Andrew Hagger with Moneynet, deposits are becoming more expensive for lenders. Leading building societies and banks recently increased mortgage rates and Mr. Hagger expects that more increases are forthcoming.
MBNA manages Virgin credit cards and a Virgin spokesperson stated that MBNA determined the criteria regarding which customers would receive the interest rate increase.
Customers can either accept the Virgin rate increase or reject it and cancel their card. However, many may not have anywhere to go. Kevin Mountford with Moneysupermarket commented that customers with less than excellent credit are usually those affected by these changes.
New credit card applicants are already facing record high interest rates. In March 2009, their average rate was 15.7 percent, according to Moneysupermarket data. By late February 2012, this figure had increased to 17.3 percent.
The recently affected Virgin Money credit card holders will see their purchase interest rate increase from 16.8 to 24.9 percent and their balance transfer rate will increase from 18.9 to 27.9 percent.
Mr. Mountford said that companies increase rates for customers whose transactional history indicates financial stress. According to Mr. Hagger, merely taking more cash withdrawals than normal can cause someone to be labeled as a risk.
Customers who reject the rate will not be permitted to spend more on their card but they can keep their existing interest rate until they repay their balance.
Mr. Hagger reported that customers with excellent credit could find much better deals, including cards with a limited time, zero percent balance transfer or purchase feature.
However, Mr. Mountford suspected that a “very low percentage” of people would qualify for these offers.
It is becoming more difficult for many UK citizens to get a new credit card. Vanquis Bank caters to customers with poor credit and recently indicated that only 18 percent of its applicants are approved.
PricewaterhouseCoopers (PwC) partner Simon Westcott said that restricted mainstream lending has caused many consumers to resort to payday loans.
These loans APR are still higher than those for many credit cards but the gap is narrowing. PwC discovered that in 2011, the number of circulating credit cards plummeted by one million.
Consumers who do not qualify for loans bank offered and are seeing their credit card interest rates skyrocket should check their Callcredit, Equifax, and Experian credit files.
If errors or omissions are discovered, they should have these corrected immediately. No credit check loans are available for consumers engaged in rebuilding their credit score to an acceptable level.
These can be used to consolidate debt, pay emergency expenses, or make up for temporary shortfalls in income.