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"Will you benefit from the credit card crackdown?"

By Reno | April 9th, 2010 | Credit Cards, Featured

Whilst having access to a credit card provides convenience, ease, and flexibility for most people the charges, fees, and practices associated with credit cards have become a real concern over the years, prompting campaign groups and watchdogs to call for action to be taken, and resulting in the government launching a crackdown within the credit card sector.

Officials believe that consumers could save hundreds of millions of pounds a year collectively as a result of the changes that have been put into place, and different people will benefit in different ways depending on the credit card that they have, how they use the card, and how they manage their repayments on the outstanding balance.

Under the new regulations credit card companies will have to apply repayments from customers to the most expensive debt first. This will prove good news for those that pay their debt of gradually, as previously most credit card providers used the monthly repayments to pay off the lower interest debt on the card first leaving higher interest debt such as cash transactions to fester and continue to accrue interest.

This is known as the allocation of payments, and means that those that use their credit cards for balance transfers, cash transactions, and purchases will be able to put their repayment towards the higher interest debt, which is cash transactions, before the money goes towards lower interest debt such as the balance transfers.

With regards to the minimum repayment levels that credit card providers ask for there will be no change to this, and this is because some officials were concerned that in the current climate raising the minimum repayment level could put some borrowers under severe financial strain. However, card companies will be required to contact those that regularly make minimum repayments to advise them that this will mean it takes far longer to clear the debt.

Unsolicited credit limit increases often put consumers under additional financial strain, as it meant that they spent money that they could not really afford because it had been offered to them on a plate. Whilst this practice will not be stopped altogether there will be more stringent rules in place to stop these limit increases being offered to those that cannot realistically afford them.

A number of other changes have been made that could affect various credit card borrowers, and it is advisable for cardholders to look more carefully at their statements and the terms and conditions of their provider over the next few months to determine whether they are being affected by the changes.

Tags: interest, credit card, finance, Credit Cards

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