CEO says now is the time for consumers to review credit cards with a recent Senate Inquiry into credit cards being told banks are exploiting “consumer inattention”.
“The interest rates charged on credit cards are incredibly high and, as such, can easily become a money trap for many consumers,” Mortgage Choice CEO John Flavell said.
“Our data shows 57.5% of Australian consumers have some form of credit card debt. Of those with debt, 35.4% have more than $5,000 in credit card debt, while just 11% said they owe less than $500 on their card.
“When you consider that most credit cards have an interest rate of 14% or higher, those who make the minimum repayment on their credit card each month may find it takes them years to pay off their debt.”
Last week, the Federal Treasury told the Senate Inquiry that credit card providers are exploiting “consumer inattention” to keep interest rates higher than they should be.
“The Federal Treasury told the Senate Inquiry this week that consumers were unknowingly paying higher credit card fees than they should because they weren’t paying attention. And while I certainly believe this is the case, I also believe consumers pay higher fees because they take the path of least resistance. They will obtain a credit card through their current lender because it is easy to do so,” Flavell said.
Further, research conducted by consumer advocate Credit Savvy suggests that an alarming number of Australians are also engaging in credit card behaviour that may be detrimental to their ability to access credit in the future.
According to the study of 50,000 Credit Savvy members, Australians with five or more credit card enquiries on file had an average score 128 points lower than Australians without any enquiries, while consumers with more than seven credit card enquiries on file were on average 187 points worse off.
The study also found that 14.1% of individuals had five or more credit card enquiries on their Experian credit file. This increased to 20.3% when looking specifically at 25-34 year old Australians.
Dirk Hofman, managing director of Credit Savvy, said he was worried that consumers were unaware of the risks involved with making a large number of applications.
“When you apply for a credit card, the lender can make an enquiry at a credit reporting body. Each time they do this it leaves a footprint on your file showing you’ve applied for credit. These enquiries can stay on your credit file for five years so if you switch cards every year, you could easily end up with five enquiries on file.
“If you have a large number of enquiries on your file in a short period of time, when you go to apply for another credit card or a loan, a lender might consider you more risky to lend to when they do a credit check.”