Why it’s suddenly harder to get a credit card
EXCLUSIVE: Credit-hungry Australians will find it harder to get a card this year, under sweeping changes designed to clamp down on unruly lending.
Customers signing up to new deals must prove they can pay back the card's full balance within a three-year period which could result in customers being given much smaller limits.
The new regulations started on January 1 and include:
- Credit providers must give customers the ability to cancel or reduce credit limits online.
- Banks cannot back date interest charges on credit card balances.
- Card issuers cannot contact customers to offer credit limit increases.
But surprisingly customers do not have to pay back the full limit within three years - they can still pay the minimum amount of just two per cent on most cards.
Financial comparison website RateCity's spokeswoman Sally Tindall said while the restrictions on card limits would help prevent customers from running into debt, it would be tougher for new customers to get a card.
"These new rules will come as a shock to some people who were banking on using a new balance-transfer card to give themselves time to pay off their Christmas debt," she said.
"A lot of people will find they're offered much lower credit limits than they're used to and in some cards rejected outright by the lender."
Balance-transfer cards allow customers to shift debt from one card often with a high interest rate to a new card with a honeymoon no interest rate period for up to 24 months.
This makes it much easier to pay back the debt without being slugged interest.
But the Finance Brokers Association of Australia's managing director, Peter White, said the new "serviceability calculations" were not enforceable, with the lender not required to ensure a customer pays back their debt in the three-year period once they have the new card.
He feared the rules would put a "handbrake" on retail spending.
"People won't have credit card limits they might have had in the past," Mr White said.
"It tarnishes everybody with the same brush, you are restricting access to credit because of the bad behaviours of a few."
Latest Reserve Bank of Australia figures found Australians owed a massive $51.5 billion on plastic and $31.7 billion was accruing interest.
Data also shows in the 2017/18 financial year Australians spent $1.5 billion on credit card fees.
And between 2012 and 2017 about 62 per cent of consumers had only one credit card.
|SCENARIO 1 (minimum repayment 2 per cent)||SCENARIO 2|
|Credit card limit||$10,000||$10,000|
|Total interest paid||$21,761||$2606|
|Time taken to clear debt||38 years, 10 months||3 years|