Credit Card users could face unexpected debt surprise

News Article

New research by uSwitch has revealed that around 19 million credit card holders have had their credit card limit increased automatically, and 24 per cent of these say they have seen their spending rise as a result.

Providers are increasing credit limits by an average of £1,300, but some customers asked by uSwitch have seen rises of more than £2,500. For some people, a credit limit increase will be welcome as it allows them to purchase more expensive items on credit, but for others it could lead to debt issues further down the line.

The study showed that of those who have seen their credit limits increase, 42 per cent have no plan for paying back the extra money or for the higher monthly payments they would need to make.

By law credit card providers are allowed to increase credit limits and consumers can stop them from going ahead by contacting the provider within 30 days. However the research showed that around two thirds are unaware that it is up to them to cancel the rise within the 30-day limit.

Of the 2,003 people surveyed, 24 per cent thought it was too much hassle to contact the provider to cancel an increase, while 13 per cent weren’t aware their limit had changed.

According to The Money Charity, borrowing on credit is currently above the level seen before the financial crisis of 2007/08 and the total credit card debt last October was £62.8 billion, which is around £2,324 per household. The Financial Conduct Authority (FCA) is currently looking into the credit card market and uSwitch believes it should ban the automatic increase of credit.

“Millions of credit card holders are running the risk of taking on more debt by providers increasing their credit limits – essentially offering them ‘free’ money. With these increased limits often unrequested, unwanted and a surprise, spending beyond their means without considering the repayments could be an easy trap to fall into’, says Tashema Jackson, money expert at uSwitch.

“Too many are in the dark about how they need to opt out of increases, or fail to do so because of the effort it will take them to contact their provider. We urge the FCA to introduce a consumer opt-in requirement for credit limit increases, which could greatly help consumers avoid unnecessary debt by ensuring that they are in better control of their borrowing.”

Andrew Skinner, partner and head of Palmers’ Debt and Insolvency department said: “These figures show that credit card debt is again becoming a significant issue for many people in the UK and is now exceeding the levels seen before the recession.

“It is important to remember that there is expert help available to help consolidate debt, to avoid legal action being taken by creditors. Anyone who is worried about spiralling debt should contact our experienced team of legal experts.”

For more information please contact Palmers’ Debt and Insolvency team.