Credit card confusion for consumers

Posted by Ben Tumilty in Personal Finance on 24 January 2017 - Ben is a Credit Analyst at checkmyfile

Credit cards. Most of us have one, and getting your first one can feel like a massive step. We all see the adverts as well – “12 month’s interest-free on purchases”, “36 month balance transfer”, “18.9% interest rate”. They also advise spending carefully and regularly checking our statements. But do we stop to think about what any of this means?

Apparently not. According to research by comparison website MoneySupermarket, 64% of those surveyed check their credit card statements just once per month. Now that might be fine if you only use your card once per month, but for those of us who are regular credit card users this almost certainly isn’t enough. You could be racking up serious credit card balances and not even realising it.

Possibly even more concerning is the further revelation that we don’t know what any of the small print – or even the more common jargon mentioned on the adverts – actually means. 12% of the respondents didn’t understand what is meant by an “interest-free period”, and 1 in 10 were unsure about the term “minimum monthly repayment”.

Kevin Mountford from MoneySupermarket explains further, “Many people will use their credit card at this time of year which, if used wisely, can help spread out the cost of big purchases, offer protection on purchases and help improve your credit score. However, if used badly you could incur unnecessary charges, end up in debt and damage your financial reputation – making it harder to get credit in the future. It’s worth taking the time to get to grips with your credit card so you avoid a financial hangover in January.”

Similarly, the Co-operative Bank have published research showing that 20% of us who have used a 0% balance transfer credit card in the last 5 years have not met the terms of the offer, subsequently meaning that the offer has been withdrawn early. This error means that the consumer has to pay a higher interest rate as a result, costing them a collective £948m per year.

It’s not just 0% balance transfer offers, either – 37% of individuals having had a credit card with a promotional offer have had the offer removed, losing the offer on average within 5 months of receiving the deal.

And it’s not as if they would have realised, or were expecting it. 3 in 10 of were not aware that the lender could remove the deal should a payment be missed, and 31% didn’t realise exceeding their credit limit would invalidate the offer.

So what can we do, as consumers, to improve our awareness of how credit cards work? Obviously, reading all of the terms and conditions might seem a little much, bearing in mind how small the print often is.

But if you’re not sure of what something means, don’t be afraid to ask someone in your local branch. After all, it’s what they’re there for – they will be know that it can be a little confusing at times, so make use of all the benefits of being a customer.

If you’re looking for more independent advice – if you’re not yet a customer and are browsing, for example – then you may still get help in branch, but you may also want to look at someone such as Citizens Advice, or the Money Advice Service. They will be able to give impartial advice and help to break down the jargon.

Alternatively, feel free to check out our jargon buster section, where we provide definitions of a multitude of financial terms that you may come across in your applications for credit.

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