In our proprietary P&L Insight Benchmark Reporting Service, FICO has seen some worrying signs for UK credit card accounts 1-5 years on book; these accounts are showing high lines, high spend and increasing delinquency.
The potentially worrying delinquency results come at a time when the FCA aims to try and address the issue of persistent credit card debt, putting requirements in place for banks later in 2018. Others have suggested capping the level of interest that a bankcard issuer can charge.
Consumers who are concerned about their level of credit card debt can use a number of options and tactics to keep their credit healthy.
- First, avoid opening credit that you don’t actually need. Credit can be tempting and people can become over-burdened if not careful.
- Once credit is open and balances are sitting on the card, have a target for paying off the debt within a set time period, and budget accordingly. That typically means paying more than the monthly minimum payment. Savvy consumers will shop for the credit products that best meet their financial needs. There are hybrid products on the market which offer an APR ranging from 5.7% to 11.1% (compared to standard card interest rates of 18% to 21%) and which bridge the gap between a credit card and a loan.
- Be mindful of what you can afford when utilising existing credit. You can and should reject credit line increases if you think the higher amounts could lead to uncomfortable levels of credit card debt, or know you cannot afford the extra spend that this would enable.
- Avoid cash withdrawals except in emergencies.
- Finally, consumers have the best understanding of their financial situation. As soon as you become aware of impending financial difficulties or changes in circumstance, contact your card issuer and other creditors to discuss your options. This gives both the creditor and consumer more time to make adjustments, and allows a wider range of adjustments to occur, especially if the actions can be taken before an account goes over its credit limit or a payment is missed. Issuers can work with consumers to negotiate payment plans, discuss moving the customer onto a lower rate credit product and review the card limit to ensure it suits the customers’ immediate situation — these are just some of the options available. Engaging earlier and more frequently with creditors can alleviate worry, and prevent a downward spiral of credit card debt that can destroy the borrower’s credit rating.