Virgin Money hikes interest rates by 50%
Virgin Money has upset thousands of credit card customers by massively increasing interest rates.
Customers selected by the credit card provider in a review of its database will have their interest rate on purchases increased from 16.8% to 24.9%. Balance transfer rates have also risen from 18.9% to 27.9%.
While it's estimated that the rate hike will affect less than 20,000 of Virgin's two million customers, the sudden increase could catch on with other credit card providers jacking up their interest rates.
So what can you do if your interest rate has been increase?
Is it legal?
Has your credit card provider acted within the law? It cannot:
- Increase rates in the first year of card membership – unless you have breached the card's terms and conditions
- Increase rates more than once every six months – again unless you break the card's terms and conditions
- Increase rates when a customer is in serious debt – this means if you are more than two months behind with payments or have asked a not-for-profit debt advice agency to call the provider to inform it of a debt problem.
Also, to stay within the law the credit card company must give you 30 days' notice of an interest rate increase.
You can reject a rate rise
From the day you receive notice of an interest rate increase you have 60 days to accept or reject it.
If you choose to reject the new interest rate then your credit card will be stopped – you won't be able to use it any longer – but you will be able to pay back the existing debt at the original interest rate.
In this situation the credit card provider must also allow you to repay the debt over a reasonable time. This means that you can't suddenly be expected to double your monthly repayments.
If you are unhappy with the new rate and have a good enough credit rating that you will be able to get another card, do just that. Shop around for a better deal, close the credit card and start afresh.
People with some outstanding debt on their card should shop around for the best 0% balance transfer deal and move to it. There are a lot of 0% balance transfer deals on the market so you may well end up with an even better deal than the one you originally had.
Whatever you do, don't just sit back and accept rising rates.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
Moving money from one account to another, whether switching bank accounts or more likely transferring the outstanding balance on your credit card to another card that charges a lower – or 0% – rate of interest. Some card providers may charge a transfer fee that can be a percentage of the balance transferred.