Credit cards Updated:
According to estimates by the Financial Conduct Authority (FCA), there are around 30 million credit cardholders in the UK, with an average credit card debt of £2,000. It's therefore crucial that such a market works well for consumers, and happily, this largely seems to be the case.
In November 2014, the FCA launched an investigation into the credit card market, and yesterday (3 November) they published their interim report. On the whole, it found that the market was working "reasonably well" for consumers, with switching levels found to be healthy and a range of flexible deals being offered.
However, there is still room for improvement, and the FCA expressed particular concern over customers who fall into persistent debt and sit just above default levels. It found that the incentives for providers to help these customers were lacking, meaning these customers may end up having to deal with long-term and unwieldy debt. And considering that it estimates that around two million people are in arrears with their credit card provider or have defaulted, that's a significant number of people for whom the market may not be working well.
In light of their findings, the FCA has suggested a number of remedial proposals to improve the market further: it wants firms to do more to identify consumers who may be struggling to repay their debt and take earlier action to help them manage repayments. In addition, it also wants to give competition a further boost by giving consumers better access to their transaction data and emphasising the role of comparison websites. Another proposal put forward by the FCA is to enable consumers to search the market without damaging their credit score.
Commenting on the FCA's findings, Mike O'Connor, chief executive of StepChange Debt Charity, said: "We welcome the FCA's comprehensive and much-needed review of the credit card market. We see too many credit users falling into financial difficulty and more is needed to ensure that what should be a short-term product does not push people into unaffordable long-term debt."
The FCA will now consult with key stakeholders on its proposed improvements to the credit card market.
This report may highlight that the market is working fairly well for most consumers, but that doesn't mean you should struggle with outstanding credit card debt or stick with an uncompetitive provider.
If you are at risk of defaulting or you are finding it difficult to pay off your debt, make sure you talk to your provider as they may be able to offer you a solution. It may also be worth thinking about applying for a 0% interest balance transfer card. These cards can give you the breathing space you need to clear your debt without interest adding to the bill. Just make sure you work out how much you need to pay each month to clear the balance before the offer expires and interest kicks in.
Whenever you are thinking of applying for a credit card, make sure you scour the market first. Comparing different deals and shopping around for the best offers can prove to be a cost-effective use of your time, so take a look at the credit card best buys and start researching the perfect deal for you. Remember to check your credit rating first; credit check report providers such as Experian can ensure that your credit report is healthy and highlight any issues that need to be ironed out before you apply for a card.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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