Interest Rates Down Credit Card Rates up!

Interest rates are now at 1.5% so why are the rates being charged by credit card companies going up.

This seems a bit unfair as clearly the Card companies profit margins are expanding in proportion with the decrease in interest rates. Reports have revealed that interest rates on average are now 18% but I am sure there are many people out there that are on rates of over 25%.

Credit Card companies have never tracked the Bank of England’s base rate so they seem to be in a league of their own. There has been a huge increase in bad debt so the credit card companies have to pay for this somehow so your increase in borrowing rates is to fund this. Credit Cards have a cap on the amount they can charge for penalties for not paying set at £12. With all this in the wash the Card companies are happy to increase their rates as with the recession looming bad debts are going rise even more.

Bear in mind this is not a blanket scenario. Unfortunately your personal credit rating comes into play aswell. Individuals will have their own rate applied depending on what risk the companies see them as. A technique in this case called risk-based pricing is applied to an individual so all rates vary from person to person.

Card companies have promised to apply “fair principles” when applying risk-based pricing giving individuals notice of changes and provide alternatives to the person affected. The new rules state that nothing can be altered for the first 12 months and there would have to be 6 month intervals between rate hikes.

You can read these rules here.