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Consumers warned of out-of-the-blue reductions in credit card limits, as rates hit new high

ended 30. August 2023

In its July Money and Credit report published this morning, the Bank of England revealed that the effective rate on interest-bearing credit cards rose by 34 basis points to a new record high of 20.76%.

While this is putting people under even more pressure, another emerging threat, experts have warned, is banks reducing credit card and overdraft limits out of the blue. 

Riz Malik, director of Southend-on-Sea-based independent mortgage broker, R3 Mortgages, said that “rising effective interest rates are clearly troubling for individuals with fluctuating rates on their credit cards. However, another emerging threat is sudden and out-of-the-blue reductions in credit card limits. Recently, I observed a credit card company informing a customer that their £14,000 credit limit was being reduced to £1,000 because of non-utilisation. The same pattern has been emerging with overdraft facilities. This mirrors what happened during the early days of the Credit Crunch and could leave many exposed".

Neezam Romjon, co-founder of Peterborough-based Rebus Financial Services, agreed with Malik that the increase in credit card rates is another blow for consumers who are already under the cosh: “With more and more people relying on short-term credit to cover the rise in living costs, this is concerning. The good news is that there are still 0% balance-transfer deals out there for those who qualify. Not keeping on top of this will prove to be a costly mistake.”

Meanwhile, Mike Staton, director of Mansfield-based Staton Mortgages, added that rising credit card rates are “another nail in the coffin of mortgage affordability. With ever-increasing costs, people are resorting to lines of credit to maintain a lifestyle that was not possible 20 years ago, and this is massively affecting the lending capacity of a homebuyer. If you are looking to buy a home, steer well clear of credit cards."

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3 responses from the Newspage community

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Editor
Riz Malik
Independent Financial Adviser at R3 Wealth
Rising effective interest rates are clearly troubling for individuals with fluctuating rates on their credit cards. However, another threat looming on the horizon is sudden and out-of-the-blue reductions in credit card limits. Recently, I observed a credit card company informing a customer that their £14,000 credit limit was being reduced to £1,000 because of non-utilisation. The same pattern has been emerging with overdraft facilities. This mirrors what happened during the early days of the Credit Crunch and could leave many exposed. Individuals relying on credit to manage their day-to-day finances may face severe challenges especially when that credit needs to be repaid.
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Editor
Mike Staton
Director at Staton Mortgages
Rising credit card rates are another nail in the coffin of mortgage affordability, with ever-increasing costs, people are resorting to lines of credit to maintain a lifestyle that was not possible 20 years ago, and this is massively affecting the lending capacity of a homebuyer. If you are looking to buy a home, steer well clear of credit cards. It's just another example of the profiteering being committed by unscrupulous lenders. Will we ever see saving rates increase to these ridiculous amounts? The answer is almost certainly not.
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Neezam Romjon
Co-Founder at Rebus Financial Services
With more and more people relying on short-term credit to cover the rise in living costs, this is concerning. The good news is that there are still 0% balance-transfer deals out there for those who qualify. Not keeping on top of this will prove to be a costly mistake.