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Credit Card Tips | New rules on paying the minimum

Credit Card Tips | New rules on paying the minimum

Credit Card Tips | New rules on paying the minimum

Credit Card Tips – Why is this happening?

Millions of customers could have their credit card placed on hold. This is if they are only paying the interest repayments (the minimum). Now, this could be a good thing for many but if this is to happen to you it could result in a bad credit mark on your credit report. Is this a positive or a negative for you?

Here’s what we think….

The FCA (Financial Conduct Authority) constantly looks to enforce new requirements for lenders to adhere to. Their objective is to protect any borrowers that are in the red and finding it difficult to get back in the black.

This new rule means that banks which have any customers in this position will need to be contacted and advised to increase their repayments. Meaning, this will happen if the individual hasn’t been repaying enough into their account for a period of 18 months or later.

Any borrowers that have only been able to make a minimum repayment each month for three or more years will have their credit card put on hold. The reason for this is to prevent any more debt for the customer. Once this happens banks will then contact credit reference agencies resulting in a bad credit mark for the individual.

Banks will also want to set up some sort of a repayment plan to recoup the outstanding balance. So, this will mean they will reduce charging fees or even drop them altogether and the interest being cleared.

The FCA forecasts a saving in excess of a hundred million pounds with this new rule.

The positives & negatives

Is this a positive?

Well, it really does depend on how much your debt amount is. If your credit card balance is really high this might be the only option.

Only having the one lender does offer you an option to get back on track with repayments and clearing your debt. If you’re actively looking at debt products you will know that they’re only available when you are paying two or more lenders.

We are unsure of how long your account will be put on hold for. However, this could offer a buffer to kick start managing your finances again. The main key point is a reduction in charges or all charges and interest being cleared. This is a real positive which is aimed to save you a lot of money and will relieve some stress.

Is this a negative?

If the debt amount is something you can pay off, it would definitely be a benefit to do so. For example using savings or a loan. Doing this will avoid that bad credit mark on your credit rating.This will then give you the option of an easy process when applying for more credit. Short-term this may affect your cash flow, but if you can manage it this will prove a positive in the long-term. This means you won’t have to deal with a bad credit rating.

Having a bad credit rating means most negative marks stay on a report for around seven years. This is quite some time and if you want a straightforward process when applying for a mortgage or a loan you should be mindful of this.

If you already have a poor credit history we would suggest weighing up your options and having a detailed chat with the bank. Remember you can always contact the credit card lender to try and negotiate to have a bad credit mark removed.

Are you looking for a source of finance which doesn’t rely on a good credit rating? If so, our bad credit loans could prove a popular alternative to any credit card.