Have your credit card habits changed?

Posted in 'Credit Crunch' by Richard Catlin

10 August 2009

If the recession has forced you to reassess the way that you manage your credit card, there is a chance that it won't have gone unnoticed by your card issuer.

Despite Barclaycard announcing profits of £391m for the first half of the year - and the Barclays Group making pre-tax profits of £2.98 billion - the card company remains cautious of exposing themselves to 'bad debt', and has taken steps to try and spot warning signs earlier.

Barclaycard has admitted that it uses repayment habits as one of the indicators when looking for signs of financial difficulty. With over 10 million credit cards in circulation, Barclaycard was the UK's first card issuer back in 1966 and uses some of the most sophisticated credit management techniques in the World.

Identifying customers who might be experiencing the early stages of financial difficulty before they start to miss payments is an increasingly important job for credit card companies. You may think that these are healthy profits for Barclaycard, but in perspective to how much money passes through their hands on a daily basis, Barclaycard is finely balanced, and as the largest credit card issuer, has more need than most to spot early signs of what is called in the trade 'delinquency'.

Rather than waiting until a customer makes late payments or even misses them altogether, card issuers are increasingly on the lookout for signs of a possible change in financial fortunes - particularly regarding typical spending and repayment habits.

Customers who have dramatically ramped up the rate that they are spending on their card, or those that might have paid the balance in full historically but now only meet the minimum payment, might find themselves amongst the 11,000 cardholders to have been contacted about possible financial difficulties in the last 2 months alone.

In the US, credit card giant American Express even went as far as offering some customers $300 to close their accounts earlier this year, in a bid to reduce their exposure to risky borrowers - with default rates jumping to over 10% in May. In the UK, Capital One, Egg and Barclaycard have all closed 'risky' customer accounts in recent months.

The Government is keen to encourage lenders to be both more responsible in their lending and more sympathetic towards customers who might be struggling to make ends meet. In contrast, Barclaycard's efforts are more likely to be influenced by the need to protect themselves from 'bad debt' than any great civic responsibility.

If you want to get a feel for how a lender might interpret your repayment habits, you can see exactly how your balance and limit have changed for each account you have, by checking your credit report based on Callcredit. You'll also be able to check how your overall credit rating looks of course, and whether there are any areas that might be improved.

If you are at all worried about meeting your monthly repayments, you can find free, impartial advice in our Debt Advice Centre - whether you've been treading water for a while or just starting to feel the pinch.

If you think your credit rating might be good enough to switch to a cheaper card, but aren't sure which to apply for, you can increase your chances of being accepted first time by using your free credit score to find lenders matched to your rating.