Credit card providers set to share customer info

With credit card companies purported to be preparing to begin sharing customer information come the spring, borrowers on both ends of the credit rating spectrum may find themselves being penalised. As can be seen in the case of Egg’s recent controversial decision to cancel the credit cards of 160,000 of its customers, lenders are becoming equally wary of high-risk borrowers as of those who manage their finances carefully in order to minimise interest charges.

High-risk borrowers who have a history of missed or late payments are being targeted as lenders crack down on high risk lending – an expected result of increased caution on the behalf of lenders due to the credit crunch. However, cautious borrowers with good credit ratings also being penalised as lenders look to maximise profits; a trend likely to continue if lenders begin sharing information on these types of customers.

Customers with good credit ratings are traditionally relatively low-profit; including those who either use their credit cards rarely, do not regularly carry forward a balance, or who rate-hop in order to chase the best interest rate deals. Credit card users who fall into this category are already seeing an increase of charges as providers attempt to squeeze profits from them, such as annual penalties for non-use of the card, and increased handling fees for balance transfers. Egg has taken this one step further by cancelling the credit cards of many of its low-profit customers. The next stage will possibly see lenders alerting each other to these customers’ habits via the sharing of ‘behavioural data’, which will enable lenders to predetermine the expected profitability of potential customers, and deny credit to low-yield applicants.

What does this mean?
Most obviously, it means that consumers who rate-tart in order to avoid interest-charges by taking advantage of zero interest offers on credit cards and balance transfer deals may find that their access to such offers dries up as lenders recognise these patterns and clamp down on low-profit behaviour. It also suggests that eventually, consumers who have a credit card but use it rarely may have to accept that they are hit with an annual penalty fee. Furthermore, it may radicalise the financial habits of many consumers who use a credit card as a budgeting tool or cash-flow regulator and repay their balance in full every month; credit card usage may become highly unattractive - or inaccessible - to these consumers.

What is the best course of action?
If you suspect that your credit card usage habits may mark you out to lenders as unprofitable, you should be sure to apply for credit prudently rather than jumping from interest-free offer to interest-free offer, as lenders will increasingly take this into consideration when processing your application. You should cancel any unnecessary credit cards, as the amount of unused credit available to you is taken into consideration by lenders, and a large number of credit cards may have an adverse affect on your eligibility. You may find it makes sense to consider a card that offers a permanent low interest rate rather than needing to frequently switch in order to avoid reverting to the high standard APR at the end of the introductory offer. A good buy at the moment is the Barclaycard Simplicity Credit Card, which offers the low typical APR of 6.8% for the life of the card on all purchases and balance transfers.

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