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Are credit increases pushing you into debt?

Are credit increases pushing you into debt?

Category: Credit cards

Updated: 03/06/2016
First Published: 03/06/2016

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Many people find that their credit card limit has unexpectedly been bumped up by their provider, and while that can lead to a quick rush of excitement, it can also mean that they end up borrowing more than they would have otherwise. In fact, StepChange Debt Charity believes that these unrequested credit card limit increases are making debt problems worse for thousands of people, and is calling for them to be stopped.

Hundreds of thousands at risk

The charity's research highlights the extent of the issue, with 54% of those with credit cards having had their limit increased without them asking for it, and of those, 49% said it had made their debt problems worse. Not only that, but 11% of credit card users said they'd approached their creditors for help when they were in financial difficulty, but that the provider's response was to raise the limit even more.

Indeed, previous data revealed that over 200,000 people asked the charity for help with £1.7bn worth of debt last year. Based on their latest survey results, this means that more than 100,000 people could have had their limit increased last year without asking for it, and as a result, 50,000 would have been worse off.

Change needed

The fear of rising debt means that the charity is calling on the Financial Conduct Authority (FCA), the UK's financial regulator, to completely ban the practice. Instead, they want to make credit limit increases something that people must opt-in to, rather than something they get automatically, and they're particularly concerned about credit limits being increased when people in financial difficulty ask their creditors for help.

As it stands, credit card companies are perfectly within their rights to increase someone's credit limit without asking, as long as they give them at least 30 days in which to decline. However, this isn't true consent, and the charity wants credit limit increases to be something they must opt-in to rather than opt-out of, which could help prevent those already struggling being pushed further into difficulty with extra credit they simply can't afford.

It's also calling to make it absolutely vital that providers carry out thorough affordability checks, and specifically, that they identify people who are in difficulty early and provide effective financial assistance – not more credit.

"Before taking out any form of credit, people need the opportunity to decide whether it is the right option for them and if they can afford it," said Mike O'Connor, chief executive of StepChange Debt Charity. "When their credit limit is increased without asking, these key decisions are taken away from them and they face the risk of taking out credit they cannot afford, which can turn into costly, long-term debt.

He added that being given a credit increase when borrowers are already struggling could have "devastating consequences for them and their families". "Credit limit increases must become 'opt in' so people are not presented with credit that they did not ask for and did not objectively decide they could afford," he said. "Opting-in, combined with better identification of people who are struggling, would be a significant step towards ensuring that more people do not become trapped in long-term debt."

What next?

If you're struggling to keep up with repayments and excess interest, it could be time to consider a 0% balance transfer card. As long as you don't spend on your previous card, you could have months (or even years) to clear your debt without interest making things even more unmanageable.

But if you're really in difficulty, don't be afraid to ask for help. Speak to your credit card provider to see if there's anything they can do – and don't accept a higher credit limit – and seek impartial support, such as from StepChange or Citizens Advice, to figure out a route to becoming debt-free.

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.