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Warning – credit cards can damage your wealth

October 11, 2006

lifestyle

Welcome back Finanosaur fans.

I have just read the news section of the personal finance comparison site Moneynet, “Credit products should carry so-called ‘wealth warnings’, the ex-chief of Halifax has maintained”, and I cannot say that I am particularly surprised.
This news should also not come as much of a surprise to most people in the UK, however with the continually ever increasing debt problem which this nation is facing, perhaps there is a need to point out such obvious facts.

With credit card interest rates now averaging around the 16%APR mark, this put them on average at over eleven per cent above the Bank of England base rate of 4.75%. This situation is especially bad for many younger people who generally will not have time to have built up a particularly good credit rating and so will generally only be offered credit towards the upper end of the rate scale, and who are often the least well informed to make these types of financial decisions. Combine this with the sneaky raising of fees, charges and rates by many credit providers to compensate for the enforced reduction of late payment charges, alongside the implementation of card transfer fees to counteract the losses experienced due to introductory 0% offers, and then the subsequently bewildering different rates assigned for new purchases, currency conversions, credit card cheques (don’t ever use them!! They are evil!!), etc, and you have a very confusing brew of financial information for anyone to deal with.

The introduction of personal summary boxes, minimum payment boxes, and improved transparency from the banks is a big improvement, but with the constant financial reports showing the huge profitability of the larger institutions, as they claw back any reductions in profits from one area by increasing rates or introducing new fees in other areas, it is unlikely that any real financial benefit will be gained for the average consumer.

Only by constantly reviewing all aspects of your personal finances, keeping an eye on small print and noting any changes that are introduced to the products, and then compare credit cards on a like for like basis of what is available, is it possible to get the best deals.

After all, it is your money, you should keep it, not the banks.

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Related posts:

  1. Praying for the death of credit card cheques
  2. 40 years of credit cards
  3. It pays to query your credit card APR
  4. Credit card interest free periods may not be all they appear
  5. UK consumers regaining control of runaway levels of personal debt
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About cashzilla

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  • Ed

    Does using your credit card and paying back the amount each month not raise your credit rating? (If only a little bit…)

  • Cashzilla

    In most cases, using your credit card and then paying back the full amount each month should over time help to raise your credit rating. The banks are looking for evidence of an ability to effectively manage personal finances. If you regularly use, but pay off your credit card, then this should be seen by most lenders as an indicator that you can manage your money safely, and can be trusted with further borrowing in future.Please note that there are many different factors which can be used to develop a credit rating by the various credit reference agencies, and they may not all weight individual factors equally. Your own bank may also have its own separate credit rating system solely for their clients which is based on their own historic records of a customers financial behaviour. The use of a credit card held through a different provider may therefore not make much of a difference to your own banks credit rating of you unless you start to default on that card and cause your rating with the credit reference agancies to fall.Always check with your bank for qualified advice if you have any queries.