Credit card providers have hiked interest rates over the past eight months, dealing a hefty blow to their loyal customers.
An astonishing 12 credit card providers put up their interest rates during the first half of the year, according to data provider Moneyfacts. Culprits included American Express, Bank of Scotland, Capital One Bank, Halifax and Nationwide.
Michelle Slade, spokeswoman for Moneyfacts, says as well as rate hikes, providers are withdrawing competitive deals and launching new cards with higher APRs than previously seen.
“Customers who repay just the minimum will be hardest hit with an additional £408 in interest now being payable on a modest balance of £2,000,” she says.
Back in April, Which? Money slammed credit card companies, accusing them of being “out of touch with reality” after its research found most major providers had put up their interest rates and charges in the previous 12 months.
The report also found that 28 credit card providers had increased interest rates or other charges, reduced the number of days to pay or reduced the number of interest-free days over the last year in a bid to squeeze more money out of customers.
Credit card rates have gone up by an average of 0.5% but Mint, NatWest and Royal Bank of Scotland have all made significant rate hikes of 4%, while Abbey and the Post Office forced rates up by 3%.
Martyn Hocking, editor of Which? Money, says: “At a time when we’re all feeling the pinch, it’s hugely disappointing that credit card companies are choosing to put the squeeze on borrowers more than ever.
“They need to make credit cheaper and their charges more transparent and fair, rather than making it harder than ever for people to make ends meet and pay back their debts.”
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So, what should you do if your rate rises?
Firstly, make sure you regularly check your credit card’s interest rate and charges to ensure these don’t suddenly creep up. If your interest rate does increase then it might be worth seeing if you can switch to a better deal.
While competitive deals are harder to find compared to 12 months ago, there are still some 0% deals on balance transfers and new purchases available.
Virgin Money’s MasterCard offers 0% interest on balance transfers for the first 16 months from the date of issue, as long as these are made within the first 60 days. The card also offers 0% on all new purchases for the first three months from the date of issue.
Egg Visa offers 0% on balance transfers until 1 September 2010 from the date of transfer, after which time the APR reverts to 16.9%. Purchases are interest-free until 1 September 2009.
Santander's Zero credit card offers 0% interest on balance transfers for the first 12 months and 0% on new purchases for three months.
However, before you switch, be aware that most balance transfer cards require to you to pay a fee, which is normally around the 3% mark.
Virgin Money’s MasterCard charges a balance fee of 2.98%, while Egg Visa and Santander’s Zero card both charges 3%.
You'll also be subject to a credit check.
If you think your provider has unfairly hiked your interest rate then you could make a complaint.
Your first step would be to make a written complaint to your provider but, if that fails, you can contact the Financial Services Ombudsman for help.
And you would hardly be alone doing so. In the last financial year, the Ombudsman received 18,590 complaints about credit cards – up from 14,123 in the previous 12 months.
If you’ve been hit by credit card rate rises then Moneywise wants to hear from you – email firstname.lastname@example.org