Study: Credit cards more expensive, harder to obtain


The cost of borrowing on credit cards has risen steadily over the past four years, according to new research by Defaqto. The independent financial research company found that the average representative APR has risen since July 2007, despite the fact that the Bank of England's base rate fell to an all-time low in spring 2009 and has stayed there ever since.


Average APR now 18.7%
The average representative APR for credit cards in the UK is now 18.7%, a full basis point higher than in March 2009, when the Bank of England's Monetary Policy Committee first lowered the base rate to its record low of 0.5%. In fact, the Defaqto research shows that APRs have become progressively higher since July 2007, when the average APR was 16.6% and the Bank's base rate was 5.75%.

David Black, Defaqto's insight analyst for banking, observed that as well as an increase in the standard interest rates charged by providers, credit cards have become "much harder" to obtain. "Providers are generally much more prudent when deciding whether or not to accept credit card applications," he pointed out in a press release. "Reflecting this, personal pricing, whereby cardholders may be charged different rates of interest for the same card based on the individual's perceived credit risk, is now firmly entrenched in the credit card industry."

Careful research can improve chances of application success
Given the widespread reluctance to give credit cards to people who might not be able to make their repayments, consumers are advised to do their research before making an application and ensure they are getting a good deal. Some card providers are known for their unwillingness to issue cards to people with a poor credit history, while others specialise in bad credit credit cards. Applicants are advised to get a copy of their credit report so that they know how creditworthy they appear to lenders. A quick online credit card comparison should then enable them to apply for the most suitable card and reduce their risk of being turned down.

See related: Cardholders advised to plan for a rise in interest rates; Credit card interest rates climb higher

Published: 16 June 2011