The principle is good, says Jeff Salway, but moving to next deal may have its hazards
The first new statements giving credit card users more information about their debts and spending habits will be sent out over the coming weeks in a move aimed at helping consumers improve their finances.
The revised annual statements, put together along guidelines set out by the UK Cards Association and the Department of Business, will contain the same information regardless of provider in an attempt to help users understand what kind of deal they’re getting.
But while the change is also designed to boost the number of people shopping around for cards by making it easier to compare them, industry insiders have warned that with credit conditions still tight, many of those applying for new deals will be rejected.
The statements may even exacerbate the problems for those already struggling to secure affordable finance by triggering more card applications, inflicting fresh damage on their credit records in the process.
The UK’s 31 million credit card users will begin receiving their annual statements on the first anniversary of taking out their card, and some companies have adopted the new format already.
The idea is that borrowers can view in one simple document how they have used their card over the last year and how much their borrowing cost them in terms of charges.
The statements include total spending on the card, split into cash advances, point-of-sale transactions and balance transfers.
They also feature the interest charges for each type of transaction and total fees and charges for the period covered. Melanie Johnson, chair of the UK Cards Association, said: “By clearly setting out costs and charges, this industry initiative could help customers get a better deal either by being more savvy about how they use their current card, or by changing to another account that’s a better fit.”
The biggest benefit for card users will lie in helping keep track of spending and borrowing, according to Martyn Saville, of Which?, the consumer group.
“You’ll be able to see at a glance whether the amount you’re borrowing has gone up or down over the year, as well as how much you’ve been charged in interest and fees. Holding this information will hopefully encourage more people to switch away from poor value products and pay off their debts more cheaply and more quickly.”
David Black, banking expert at financial researcher Defaqto, said: “They will give useful information in a readily accessible place about the costs incurred by credit card users and will make it very much easier for the cardholder to compare their existing credit card with alternatives.”
Kevin Mountford, head of banking at Moneysupermarket.com, was less optimistic.
He said: “We are a fairly apathetic nation and most of us fail to check our financial product holdings, including credit cards.”
The statements are being launched partly with the aim of making users more aware of the interest they pay, with concerns that many people overlook the interest charges on their monthly statements.
Sylvia Waycot, spokeswoman at Moneyfacts, said: “The principle is good, and if someone opens an annual statement and sees that over the last year they have been charged £400 interest, it may be the catalyst to a change of how they use their card.”
But there are limits to the practical benefits the statements will provide for card users, with much depending on how well different providers put them together.
Their value will also be undermined for those with several different credit cards, who will get their annual updates at different times.
“Even if you have several cards it will be difficult to compare as they will be set over different time periods, one may include Christmas shopping and one may not,” Waycot pointed out. “For any comparison to be made, the cardholder will need to keep to a consistent spending pattern, any variation on use or paying it off will affect the overall interest paid.”
Perhaps the biggest frustration lies in the difficulty facing many of those wanting to move to a different card. While the new statements may make it easier to access costs and compare deals, those with the most expensive cards will find it hardest to change.
If you’ve got a strong credit record, you’ll likely be given the greatest incentive to change your card on a regular basis, with the best deals – such as long zero per cent periods – offered only to new customers presenting the least potential risk.
In contrast, you’re likely to be charged a higher interest rate or be turned down altogether if your credit record is blemished. “Credit cards are becoming increasingly hard to get as providers have progressively tightened their underwriting and acceptance criteria to the extent that increasing numbers of people are no longer able to get a credit card,” said Black.
So while the new statements will spur many people to look for a better deal, there’s a concern that they could have the unintended consequence of damaging credit records due to the print left by each card application.
If you do apply for a new card it’s worth tidying up your credit file first. You can check your credit record through firms including Experian, Equifax and CallCredit and should scrutinise the information they have for errors.
Some banks, including Barclays, have “soft” application systems that give you an idea as to whether or not you would be accepted for a card without leaving a print on your credit record.
There are hopes that the new updates will make it easier for card holders to manage their money and keep a closer eye on their spending.
But more needs to be done to help those already struggling with their card debts, according to Citizens Advice Scotland.
A spokesman said: “The problem is that many people who are in the most severe debt get to the stage where they don’t even open their credit card statements.
“Greater clarity is always going to be a good thing, but we would like to see the same principle adopted where the credit agreement is actually signed, or the credit card taken out in the first place.
“We won’t really get a grip of the issue of consumer debt until we change the culture of lending itself, to stop irresponsible lending.”