Good credit? Goodbye. It’s all about the profit.

Thousands of Egg credit card customers have had their credit cards cancelled following an extensive one-off credit review. Egg wrote to around 160,000 customers last week, informing them that their Egg credit cards were being cancelled. Affected customers will no longer have access to credit through Egg, but are able to continue repaying their debts as usual.

Egg, owned by Citibank, claims the move was in order to offload ‘high-risk’ customers, which, in light of the heightened strain on lenders as a result of the credit crunch, appears to be a responsible action. Banks throughout the UK are tightening their belts when it comes to unsecured lending in general, and customers with a poor credit history are sure to be the first to be affected where their access to credit is concerned, whether it be in the form of credit cards, loans or mortgages. However, reports have surfaced that many customers with good credit profiles, having never missed any repayments, have also had their Egg cards cancelled. This has prompted speculation that Citibank has moved to reduce the number of risky borrowers on their books, while dumping low-profit customers at the same time.

Over the past 12 months there has been increasing pressure on credit card users who manage their finances carefully and as a result do not pay interest charges. Many consumers are taking advantage of the influx of credit cards offering interest-free balance transfers and lengthy interest-free periods on new purchases that have flooded the market in the last 24 months as providers have fought for increased market share. However, with more and more customers avoiding interest charges altogether, credit card providers have been finding other ways to increase profitability – a trend started by Lloyds TSB last year, when they introduced a ‘no-use’ charge in the form of a £35 annual penalty for customers who were not using their credit cards.

Similar attempts to squeeze profit from their low-profit customers include providers increasing rates and fees on their products. Most notable is that these rate increases don’t apply to the headline purchase rates or balance transfer rates that are the most common way to compare credit cards, but are hidden away below the fold. To list a few, a large number of lenders have increased interest rates on cash withdrawals by half a percent or more; many have increased foreign usage loading by up to a quarter of a percent; as well as increased annual fees and raised handling fees on balance transfers. In fact, according to research by moneyfacts.co.uk, in the last five months over 125 credit card providers have increased their charges in this way.

Egg is clearly taking this trend to the next level by cancelling the credit of low-profit customers altogether, and the question now being tackled by analysts is whether other lenders will follow suite. If so, more and more consumers will be pushed onto secured forms of borrowing such as secured loans, which is good news for lenders, but not such good news for customers who don’t wish to borrow at the risk of losing their home. The best advice for customers who find themselves in this position is to vote with their feet; one of the best cards on the market at the moment is the Capital One Platinum MasterCard, which offers the competitive APR of 9.9% with competitive introductory offers. When looking for a new card be sure to not just compare cards by their headline rates; check all the associated fees and charges and do your sums to make sure your credit card is working for you, not just your provider.

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