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"The problems facing credit card rate tarts"

By admin | February 4th, 2009 | Featured

Over the past few years the term rate tart has been banded about a lot, and the wide range of credit cards has come onto the market over recent years has resulted in borrowers being able to save a small fortune on their borrowing.

The launch of 0% balance transfer credit cards has played a big part in the rise of rate tarts, with consumers using savvy skills to save money on the amount of money that they have to pay on their interest.

Basically, rate tarts tend to switch their credit cards on a regular basis, so that as one 0% interest period draws to an end they can transfer their leftover balance onto another deal, and as that one draws to an end they transfer again, and so on. This enables them to enjoy a far longer period of interest free credit, although it is not something that was looked upon favourably by lenders, who were not happy about losing so much money on interest. Lenders then responded to these actions by adding a balance transfer fee to cover the costs of these new acquisitions.

However, the boom days for rate tarts seem to be well and truly over for a number of reasons. First of all, the number of credit card deals on the market have been falling as a result of the global credit crunch, and the borrowers that may have once found it easy to keep switching credit card deals to save money may now find that they cannot get credit cards from many lenders, which puts a spanner in the works of those that want to keep switching from one interest free deal to another.

Another thing that is likely to affect the success of rate tarts is the fact that credit card companies have now started sharing information with one another, and this could make it increasingly difficult for those that want to keep switching their credit cards to get 0% interest for a longer period of time. At a time when many rate tarts have found that their money saving tactics are being challenged by the market, this could make a difficult situation even worse, which is bad news for rate tarts that were hoping to offset the cost of Christmas by changing cards.

As part of the data sharing process credit card companies will be able to look at various aspects of the cardholder’s account, and this includes things such as their repayment habits, how much is paid off each month, what the outstanding balance is, whether they have a 0% interest deal, whether the card is used to make cash withdrawals, and whether any changes have been made to credit limits on the account. All of this will help a new cardholder to decide whether to accept or reject credit card applications.

One industry expert stated: ‘While the increased levels of data sharing may prevent some cases of customer over-indebtedness, it also gives lenders the ability to pick and choose customers and decline applications from non profitable ‘rate tarts’, who constantly move their borrowing to 0% deals.’

Another stated: ‘Once they see the levels of debt, they could decide to increase your interest rate or reduce your credit limit based on the new information.’

Tags: rate tarts, Balance Transfers

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