UK consumers find credit cards useful -- but confusing

By Marianne Curphey

UK cardholders see their credit cards as useful and intend to carry on using them -- but they're not fans of the small print that comes along with the plastic, according to new research.

In a recent survey from Auriemma Consulting Group (ACG), participants indicated that they were highly likely to continue charging in the "foreseeable future." But few rated the rules, terms and conditions of their cards as "easy to understand." On a 25-point scale (with 25 being the highest rating), the clarity of the terms and conditions received an overall rating of 11.confused

What's confusing cardholders?
What customers find the most frustrating and confusing are the unforeseen implications of the terms and conditions, according to Mark Jackson, director at ACG. In other words, consumers are getting hit with fees and punishments they don't see coming.

Some examples, according to Jackson, include:

  • Interest rate hikes for cardholders who make credit mistakes (like missing payments). Balance transfer cards often come with low introductory interest rates -- but those rates can go away if a cardholder misses a payment. Even cardholders with normal credit cards can see their interest rates go through the roof (or see their credit limits lowered) after missed payments. These consequences can come as a surprise for those who don't know credit card companies can make these changes without any warning.
  • Over-limit fees for cardholders who didn't expect them. Many cardholders don't realize they are near their credit limit before they make the transaction that takes them over.

Room for improvement
This confusion could benefit the credit card companies who see it as a reason to improve, according to Mark Jackson, director at ACG. Issuers who simplify their products and services and communicate clearly with customers will be the ones who manage to retain customers.

"The key point is about ensuring that there are no surprises when consumers are dealing with their card providers," Jackson says. "The industry has worked hard at creating greater transparency and simplicity, but there is still some way to go before consumers perceive that they truly know and understand exactly how they will be affected."

That means credit card companies need to be transparent when they recruit consumers and even after they get their cards, according to Jackson. Customers need to be educated about what could happen if they make mistakes -- and be told why they're being penalized after they've made a misstep. Jackson suggests regular text and email communications as a way of accomplishing this.

"From a consumer standpoint it's about managing expectations," Jackson says. "A relationship that is straightforward, fair, clear, transparent and proactive will result in deeper relationships and much lower dissatisfaction when things go wrong."

Reaching out to customers before they get into serious debt trouble is also important, says

Paul Crayston, spokesman for National Debtline, which offers free debt support and advice. He cites research that National Debtline recently did with Barclays, in which a "pre-arrears" team identified customers who were struggling -- but who had yet to fall into arrears. This team asked the struggling cardholders about their finances and other debts they had.

"We found that contacting people at this early stage, before they reached a point where they might be contacted by collection agencies, to be really helpful for people," Crayston says.

Cardholders have responsibilities, too
Although credit card companies can do much to improve their relationships with their customers, it's still up to customers to ask for help and clarification if they need it.

Crayston provides the following tips for avoiding credit missteps -- and the surprising fees, over-limit charges and interest rate hikes that come with them:

  • If you are finding yourself in arrears or struggling to make a minimum repayment, seek financial advice.
  • Monitor your card use. It could be a useful indication of how you are doing financially. If, for example, you fund a major purchase with your card but then find that you are starting to use it to pay for bills, rent or food, that's a sign you're headed for trouble.
  • Find areas where your spending is the greatest, and cut back.
See related: UK teens have low financial awareness, survey says; UK consumers being extra cautious with credit

Published: 27 February 2012