Customers urged to switch as card firms start to twitch
Balance transfers offer a way out of bad deals, says Emma Lunn, but credit providers are getting choosy about who they lend to
Sunday 17 February 2008
Credit card customers could save an average of £140 a year by switching to the best deal, the Office of Fair Trading (OFT) said last week. "No one wants to throw money away, but consumers who don't shop around are doing just that," said the watchdog's chief executive, John Fingleton.
The OFT added that card firms don't make life easy for customers, with an array of different interest rates and terms and conditions. In short, they make it hard for borrowers to compare deals.
But the OFT's call for greater transparency to encourage switching may not be quite in tune with the new credit-crunch reality.
Two weeks ago Egg, whose card business is run by Citigroup, wrote to 161,000 of its customers to say it would be closing their accounts. The online bank said it was ridding itself of people who posed an "unacceptable risk" because they had exceeded their credit limit or missed payments.
Steve Willey, head of credit cards at price-comparison site Moneysupermarket.com, comments: "If Citigroup was simply stopping further spending by riskier Egg customers, then it should be applauded."
But he adds: "The customer feedback we have received suggests many people paying their balance in full every month have been targeted. If Citigroup is using this Egg crackdown as an excuse to get rid of less profitable customers, that is disappointing."
Whatever the truth, this cull shows banks are getting fussier about who they lend to. And if the credit crunch worsens, more may take a stronger line with borrowers. Even those with near-perfect credit histories may find themselves turned down for cards or offered lower credit limits or higher interest rates.
But switching is still going on, encouraged by attractive balance-transfer deals such as Virgin Money's 0 per cent interest for 15 months and Mint's 0 per cent until 1 March 2009.
"Almost certainly, everyone can save money by switching – or at least stave off hefty interest payments – and we would urge consumers to continue to seek out the best deals," says Sean Gardner, chief executive of price comparison site MoneyExpert.com.
That said, Lisa Taylor at financial analyst Moneyfacts points out that switching cards regularly is becoming harder. "First, you cannot transfer balances between cards backed by the same provider. Second, most deals are only available to new customers, so you can't complete the circuit of providers too often."
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