Barclaycard takes the first step towards reducing interest rates

Well we have all been waiting for the credit card companies to make a move over the proverbial interest rate cut line.
Barclaycard are probably the first to confirm that they will be cutting their interest rates. Before we get too excited this will however only apply to a quarter of its customers which are classed as “low risk”. The rates cuts will be in the region of 2.5% to 5%.

It seems like the card provider is trying to engage their customers more through the current economic climate by establishing a helpline for customers who may be struggling to pay back the debt on their cards. New customers will also get greatly reduced rates on Barclaycard Platinum and Barclycard OnePulse, which will see the rate of interest charged on these cards reduced to 12.4%.

Moneyfacts the comparison website revealed that 32% of the population will use their credit cards in the first part of the year. In the past a lot of people would spend on their credit cards and use their annual bonus to pay off most if not all of it, however a lot has changed in the last 12 months and with bonus pools dropping to near extinction these credit card debt balances may be around a bit longer. A cut in interest rates is a welcome relief for many, lets just hope all the other credit companies follow suit very quickly.

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.