Wednesday, February 06, 2008

UK Banks tighten rules on credit card

In view of the increasing number of credit card holders missing their payments, UK banks have tighten up rules on the credit card usage. Such drastic moves are important to curb overspending among the cardholders.

Egg, an online bank has banned 160,000 debt-ridden customers from using their cards. The move will affect 7% of its 2 million credit card customers who have higher than acceptable risk profile – they are spending over their credit limits or failing to make even minimum repayments every month.

HSBC is turning away half of its credit card applicants as compared to one-third which they used to turn away.

Barclaycard is blocking some customers’ ability to withdraw cash on their credit card as it is a classic sign of financial distress.

Others are slashing 20% of their customers’ credit card limit since August and clamping down on credit card customers who they fear are spending money they will never repay.

These may be the jolt needed for some of the credit card users as they are a growing number of people relying on credit to manage their day-to-day living.

Personal opinion:
I believe such moves are necessary to curb the alarming increase in credit card debt worldwide. Rather than dishing out credit cards to the applicants, banks should take a more pro-active move to help customers to control their card spending such as:
  • a limit on how many cards a person owned,
  • stricter acceptance rules such as higher income requirement
  • lower credit card limits
  • higher minimum payment (may be 15-30% as compared to 5% now)
  • lower interest rates.

Related posts:
5 bad habits for getting into debts
10 warning signs of credit card debts

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