Are Your Credit Cards Turning Nasty?

Although base-rate cuts may arrive this year, two major card firms are to raise their rates. What's more, obtaining credit is far too easy, as this evidence shows!

News just in: two well-known credit-card issuers have announced that they will raise their interest rates next month.February statements for TescoPersonal Finance's Platinum Finest MasterCard will feature the following rate hikes:Purchases: 15.75% a year (from 14.8%)Cash and cheques: 19.09% (from 17.8%)Balance transfers: 16.89% (from 15.9%)Holders of the John Lewis/Waitrose Partnership Card face a 1½% rate hike across the board:Purchases and balance transfers: 15.5% a year (from 14.0%)Cash and cheques: 17.5% (from 16.0%)John Lewis has also joined the ranks of companies that charge for balance transfers, adding a 2% fee subject to a £5 minimum and a £50 maximum.As I revealed in this analysis of 319 credit cards, the average rate on purchases is just over 15½ APR. Hence, the above rate hikes move Tesco and John Lewis into distinctly mediocre territory, especially when you consider that Barclaycard Simplicity charges an ultra-low 6.9% typical APR on purchases!Still, hats off to these firms for their clever timing, because the bills for our latest Christmas spending binge are hitting doormats right now. It's bad enough finding out how hard you hammered your plastic during the run-up to Christmas and in the January sales, without getting another unwelcome surprise in the form of a rate hike.Furthermore, most economists expect the Bank of England's base rate to be cut this year, plus the last base-rate change was a quarter-point (0.25%) reduction in August 2005. Hence, the only reason for these rate hikes must be pure profiteering, which is a slap in the face for existing cardholders. Anyone not paying off their balance in full every month will be hit by these higher rates, so watch out!In fairness, card companies are being hit on two fronts. First, cunning 0% card tarts are enjoying up to a year's credit without paying a penny in interest. Meanwhile, the poor old card companies have to pay interest on their borrowing, plus advertising, administration, website and call-centre costs. Second, as easy credit turns into tough debt, bad debts are on the rise, with more and more borrowers paying late, skipping payments, or even becoming insolvent or bankrupt.Nevertheless, don't feel too sorry for the set-upon banks, as I predict that UK's five biggest banks (Barclays, HBOS, HSBC, Lloyds TSB and RBS/NatWest) will have made a combined profit of £35 billion for 2005, which is an all-time record!In order to repel the rate tarts and offset rising bad debts, card firms are taking advantage of their existing customers, as well as using these five sneaky tricks. Yet again, this clearly demonstrates that it pays to be a new customer, rather than a loyal or longstanding existing customer.Another problem with devastating long-term consequences is that getting credit remains far too easy, despite some lenders taking steps to tighten up their credit-scoring policies. We've all heard the stories about children or even pets being sent pre-approved credit-card offers, but it's still not difficult for unwary or careless borrowers to build up massive debts.In fact, according to comparison and switching service uSwitch, banks still work on the lend now, ask questions later principle. A new survey from uSwitch found that:Close to nine out of ten credit-card applicants (88%) were not asked to prove their stated income. This could tempt people into exaggerating their income, including those who may be struggling to make ends meet, such as the unemployed, retired, students and people on low incomes.Nineteen out of twenty (95%) did not have to demonstrate their ability to repay the debt. Apparently, lenders don't care how good you are at budgeting!Some card companies are granting credit limits in excess of applicants' annual gross incomes, which is the ultimate in reckless lending, and could easily create lifelong debts!In this environment, is it any wonder that two-thirds of the EU's total credit-card debt is found in the UK (with our 75 million credit cards carrying a total debt of over £56 billion)?uSwitch warns that although the Banking Code Standards Board plans to overhaul the voluntary guidelines covering lending practices, the damage has already been done. Years of escalating, cut-throat competition for borrowers has saddled us with record debts, leaving millions of households sitting in the firing line when times get tougher. Yikes!Finally, if you don't like the idea of lenders cashing in on your apathy or goodwill, then vote with your feet by finding a better deal. The Fool's Credit Card centre will help you to select the very best 0% balance transfers, 0% on purchases deals, low-rate cards, and cashback and reward cards.More:Britain's Most Expensive Credit Cards | Your Ultimate GuideTo Credit Cards!Cliff owns shares in HBOS and Lloyds TSB.