Con­sumers live to re­gret lure of easy credit

The Morning Bulletin - - MONEY SAVER - TIM McIN­TYRE

AUSSIES are learn­ing to be wary when their bank comes knock­ing with a new of­fer, es­pe­cially when it comes to credit cards.

Finder.com.au re­search re­vealed that 37 per cent of Aus­tralians who had in­creased their card limit in the past five years re­gret­ted it. Many now strug­gle with in­creased debt or a neg­a­tive ef­fect on their credit file and abil­ity to bor­row.

The sur­vey of 2011 re­spon­dents also re­vealed the wor­ry­ing statis­tic that 57 per cent of those who had re­cently in­creased their credit card limit had done so at the sug­ges­tion of their bank. More than one in three wished they had ig­nored the ad­vice.

Finder.com.au spokes­woman Bessie Has­san es­ti­mated 1.3 mil­lion credit card hold­ers were now strug­gling with debt as a re­sult of lift­ing their credit card lim­its.

“They’ve found them­selves in a sit­u­a­tion where they have ex­ceeded their credit util­i­sa­tion thresh­old,” she said. “Had they kept their pre­vi­ous lower max­i­mum limit, it’s un­likely they would have fallen into a debt trap.”

New amend­ments to the Na­tional Con­sumer Credit Pro­tec­tion Act 2009 for­bid banks from invit­ing cus­tomers to in­crease card lim­its, but the re­form – in force since July – may not be help­ful for the 43 per cent who ap­plied for in­creases them­selves.

Ms Has­san said in­creas­ing lim­its could work for dis­ci­plined cus­tomers want­ing to earn re­wards points on large trans­ac­tions, pro­vided they paid their bills on time, but oth­ers should con­sider be­ing proac­tive with debt re­duc­tion in­stead.

“Work on in­creas­ing the amount of avail­able credit by pay­ing down your bal­ance in­stead of get­ting into more debt,” she said.

Aus­tralian credit card hold­ers have an av­er­age limit of close to $10,000 on their credit cards, 34 per cent of which they ac­tu­ally use. Some do not re­alise that in­creas­ing lim­its can af­fect their credit score, even if they do not ac­tu­ally spend the ex­tra money.

Credit Card Com­pare CEO David Boyd said card hold­ers should pri­ori­tise clear­ing debt and pay­ing bills on time. “Bal­ance trans­fer cards are the best way to clear debt and they give you 25 months,” he said. “But you’ve got to close down the old card. Oth­er­wise the temp­ta­tion is that you keep two cards open.”

Credit card users of­ten in­crease their lim­its be­cause of a large up­com­ing pur­chase, said So­ci­ety One CEO Mark Jones, who sug­gested look­ing at al­ter­na­tives.

“If you need fi­nance for a cer­tain pur­pose, like ren­o­va­tion or debt con­sol­i­da­tion, a per­sonal loan can get you a bet­ter in­ter­est rate and a shorter re­pay­ment term,” Mr Jones said.

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