UK, 20 December 2021: According to new analysis from Experian, UK credit card holders could save almost £1,000 over the next three years by switching to a balance transfer card.
The Money Charity estimates each UK household has an average credit card debt of around £2,0582. A customer with this balance, paying the minimum monthly payment of 3% (£61) with an APR of 19.9%3, could save around £33 per month if they were to transfer their balance. After taking the 1.5% transfer fee into account, this results in an overall saving of £995.43 over 30 months.
Savvy Brits planning ahead for Christmas spending
The data suggests Brits are getting their finances in order for the festive period by transferring outstanding credit card balances to lower interest rate deals. Experian’s figures show a 27% increase in the proportion of people applying for a balance transfer card in September – November 2021, compared to the same period in 2019. 4 The number of people pre-approved for a credit card also rose by 14% in November 2021 when compared to 2019.5
John Webb, Experian’s Credit Expert said: “Switching to a balance transfer card can be a good option to help pay off existing credit card debt. Before applying for any kind of credit, use comparison services like Experian to check what you’re more likely to be accepted for. Searching doesn’t affect your credit score, and you can even guarantee interest rates before you apply.”
How to manage your money in 2022
50% of respondents are planning to be more careful with money next year, stating that the pandemic has made them re-evaluate their finances. 23% expressed concerns about their financial future, with nearly one third (27%) of Christmas celebrators more worried about going into debt over the festive season this year than they were last year.
Webb continues: “Many people aren’t clear about the best way to stay on top of their finances in the coming months. For example, 54% of people believe or don’t know that interest on credit becomes payable immediately after purchasing an item. This isn’t true and is one of the myths we want to help bust as people look to organise their money.”
FACT OR FICTION: SEVEN CREDIT CARD USE ASSUMPTIONS EXPOSED
|
Perception |
Fact or fiction |
Experian says |
|
The number of credit cards you own affects your credit score |
Fiction |
Almost all Brits (85%) said they thought this was fact, or weren’t sure if it were true. It’s not the number of credit cards you have that affects your credit score, but how you use them. You can reduce your credit score by nearing your limit. You can improve this by keeping your balance around 30% or less, of your credit limit. If you have multiple credit cards you haven’t used in a long period of time, then consider whether you really need this. Just remember though, having a card with a high credit limit is a plus for credit scores. |
|
Making a large purchase on your credit card (e.g., a holiday) affects your credit score |
Fiction |
Over two thirds of Brits (69%) thought this was fact, or weren’t sure if a large purchase on their credit card would affect their score. We don’t record your credit card transactions on your credit report, so this doesn’t directly impact your score, it’s how much of your credit card limit you use (known as your credit utilisation) that does. We generally suggest sticking to about 30% or less usage of your credit limit. This means if you have a credit card with a £1000 limit, try to stay below £300 You might go above this sometimes, especially when a large purchase (over £100) has section 75 protection. But the most important thing is making sure you can meet the monthly payments and have a plan to repay in future. |
|
There are no real benefits to a balance transfer card |
Fiction |
Over half (54%) of Brits didn’t know there were any benefits of a balance transfer card, or were unsure what they were. By moving your existing card debt to a balance transfer card, you could reduce the amount of interest you pay – usually for a small fee. These cards typically offer a 0% or low interest rate for a set period. This means your monthly repayment is usually lower, and you have the opportunity to overpay, using the saving. |
|
You should always owe money on your credit card to improve your credit score |
Fiction |
54% of Brits thought this was true, or were unsure if they should always owe money on their credit card in order to build their credit score. Lenders like to see ‘active’ credit cards, that demonstrate consistent monthly repayments. However, you could use a credit card for minimal (planned) monthly spending, and repay it in full each month. This way you’ll avoid paying interest. |
|
Interest on credit becomes payable immediately after purchasing an item |
Fiction |
Over half (54%) were unsure, or believed this to be true. Interest is only added after a new statement date and when a balance has not been paid off in full. So, if you make a purchase, receive a statement and then pay off the balance in full by the due date, you will not be charged any interest. However, if you make a payment, receive a statement with that item but do not pay off the balance in full, interest will be charged on the outstanding balance from your last statement up to the date of your current statement. Remember, interest for credit cards vary so it’s worthwhile checking your rate. |
|
Switching credit cards affects your credit score
|
Part Fact/Part Fiction |
Over three quarters (76%) of Brits believe that switching credit card providers could affect their credit score – or were unsure if it would. Whenever you apply for credit, your score might dip slightly in the short-term. We recommend being careful and only applying two or three accounts every few months. It’s important to use comparison sites, like Experian, so you can check what you’re more likely to be accepted for first, without impacting your score. You could even be pre-approved. If you do get a new credit card, your score may dip slightly for 6-12 months. This is until lenders can see you’ve consistently made your monthly payments on time. If you do this, you could see your score improve in the long-run. |
|
Buying a holiday on a credit card gives you extra protection under the Consumer Credit Act |
Fact |
Nearly a third (32%) were unsure if this was fact – or believed it to be fiction. In fact, most purchases made on a credit card are protected by the Consumer Credit Act (section 75), if they’re over £100. Buying a holiday on a credit card will, in most circumstances, give you protection. It allows you to make a claim against your credit card company to get your money back if a retailer or trader lets you down and refuses to honour the contract properly - including if it goes bust. Read about the Consumer Credit Act protection here. |
ENDS
* Accumulated saving over three years
[1] Accumulated saving over three years
[2] Statistics from The Money Charity: https://themoneycharity.org.uk/money-statistics/
[3] Figure calculated on 07 December by Experian. The figure was calculated using the average UK household credit debt of £2,058, the minimum monthly repayment of 3% and a current APR of 20.9%
[4] Comparing credit card applications on Experian’s Marketplace from September – November 2021, to September – November 2019.
[5] 56% of people searching for cards on Experian’s Marketplace saw a product that they were pre-approved for in November 2021, compared to 49% of people in 2019. This is a 7% increase.
About the consumer research
Conducted by Opinium of 2,001 UK adults weighted to be nationally representative. Field dates were from 23rd - 26th November.
Media contact:
Brands2Life for Experian
Tel: 0207 592 1200 / Email: experian@brands2life.com
About Experian
Experian is the world’s leading global information services company. During life’s big moments – from buying a home or a car, to sending a child to college, to growing a business by connecting with new customers – we empower consumers and our clients to manage their data with confidence. We help individuals to take financial control and access financial services, businesses to make smarter decisions and thrive, lenders to lend more responsibly, and organisations to prevent identity fraud and crime.
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