Credit cards: the pick of an increasingly bad bunch

With interest charges on credit cards rising to a 10-year high the common sense reaction ought to be to pay off this debt as fast as possible.  The average rate for purchases is now an eye watering 19% - and this at a time when Bank Base Rate is just 0.5%.  This rate does, of course, reflect the banks’ bad debt experience but even so, the banks must be making healthy profits at this extortionate rate.

Recently MBNA has increased the interest charge on its platinum and platinum rewards card by 1% to 16.9% and Barclaycard has put up the rate on the platinum simplicity card by 1% to 7.8% - although this is still a card to go for if you are a good credit risk and use the credit facility.  One exception is SAGA which last April bucked the trend by cutting the rate on its platinum card by a massive 4% to just 11.9% - also a card worth considering.

Although the average rate is 19% many cardholders are finding that they are being singled out for increases on the grounds that they have a less than perfect credit track record. And even if you are squeaky clean, some card companies are still increasing the rates.

‘If you've been managing your card in accordance with your agreement, why should you be expected to pay a vastly increased rate to subsidise lenders mistakes and other customers’ bad debts?’ asks Andrew Hagger of Moneynet.  ‘If the likes of Saga can manage to cut their rates amidst challenging economic circumstances then you have to question why other providers are pushing their rates in the opposite direction.’ 

Michelle Slade of Moneyfacts.co.uk makes a similar point.   ‘Card companies are reassessing their existing customer base, resulting in numerous customers seeing a rise in their rate. Many such customers who would previously have switched to another provider are now finding it's not so easy to do so,’ she warns.

So if you want to apply for a low rate credit card it’s time to have a clear out.  First, get rid of any cards that you no longer use.  Don’t just cut them up.  Write to the provider and say you are discontinuing the account as this will then be recorded on your credit file.  Some credit card firms will turn you down simply because they can see you have several cards and they are worried about the total amount of credit to which you have access – even if you are not using it.  Check with the credit reference agencies, Experian and Equifax whether there are any missed payments or black marks recorded on your file.  There can be mistakes so make sure the file is up to date and correct.

When you are sure that you are squeaky clean you can apply for the Co-op Bank’s Platinum Tracker Visa card which has an interest charge on purchases of just 7.7% and a balance transfer rate of 0.5% as well as an introductory purchase rate of 0.5% for six months.  You will need a minimum income of £25,000 a year to qualify.

Personal Loans

If you can’t get a new credit card with a lower rate consider a personal loan to consolidate more expensive borrowing.  Best buy for smaller sums is from Alliance & Leicester which is offering loans of £5,000 to £20,000 over three years at 8.9%.  Monthly repayments on a £5,000 loan over three years work out at £158.