News In 5 Minutes

News When You Want It

Credit card: Savers to ‘hit the reset button on their finances’ as pre-approval rates jump | Personal Finance | Finance

Credit card companies and offerings have been impacted by a “credit crunch” caused by coronavirus according to ClearScore. However, in positive news, the worst of said crunch may now be over and consumers may be able to be optimistic about the future.

Research from ClearScore has found that the average number of pre-approved credit cards is now back to 79 percent of January’s levels, from a 49 percent low in July.

Additionally, the number of loan products is now sitting at 62 percent of January’s levels, more than double April’s 30 percent at the height of lockdown.

This increase in products is mirrored by an increased appetite from consumers.

The same research found that 34 percent of people are prioritising switching or taking out a new credit card, while 20 percent said they were likely to apply for a personal loan in the next six months (based on a survey of 1,273 respondents).

READ MORE: Martin Lewis credit card warning: ‘It’s not worth it’

However, they also warned that if a second wave of coronavirus is on the horizon, there is a risk that these trends may reverse.

Additionally, as payment holidays and the governments support schemes come to an end, further stress could be added onto the populous.

ClearScore detailed that at the moment 28 percent of consumers are prioritising paying down short-term debt, as opposed to planning for the long term.

It was calculated that With a 61 percent increase in the number of pre-approved credit cards available in August (38.31) compared to July (23.72), the average consumer could save £626 by switching existing credit card debts to a new credit card this month, based on a standard balance of £1,300 with representative APR 35 percent (ClearScore customer’s average) and monthly repayments of £50.

Justin Basini, the CEO and co-founder of ClearScore, commented on the company’s findings: “The pandemic has provided an opportunity for many to hit the reset button on their finances and take the time to organise their spending and pay down any outstanding debt.

“With government and industry financial schemes set to wind down by the end of October, now is the time for people to make the most of the credit options currently available if they are in the market for credit.

“Whilst the availability of credit products has increased, it’s important for consumers to fully understand the terms of any products they may take out to see them through the coming months.

“Our research has shown that the average credit card APR has risen by a weighty 32 percent during the course of the past eight months.

“And with almost half (47 percent) of people admitting to not knowing the APR on any of their credit products (including credit cards, loans and mortgages), this substantial increase in APR during the last eight months could end up costing unsuspecting consumers dearly.”

Credit cards can be useful financial tools but they can be dangerous if abused.

Guidance and impartial advice on how to select and use credit cards safely can be sought from the likes of Citizens Advice and the Money Advice Service.

Source link