Opinion: why can’t credit card companies be honest about interest rates?

Just half of applicants will get the APR that's advertised, despite credit card companies having the technology to do better.

With a few exceptions, haggling is not required in the UK and the price you see is the price you pay.

And there’s a good reason for that: not knowing the price is irritating, wastes your time and could leave you out of pocket.

That’s until you come to credit cards. You may notice that the card’s interest rate, where advertised, is labelled ‘variable’.

But did you know just 51% of successful applicants have to get that rate?

If you’re in the remaining 49%, you could end up with a far higher rate. Whilst researching a recent article about credit builder cards, I found that whilst an APR could be advertised as 24.7%, you could be offered as much as 63.9%.

So, if you borrowed £1,000 and paid it off over 12 months, you’d pay £160 more in interest for what is, allegedly, the same credit card.

Confusion over rates mean borrowers are paying £204 million more a year than expected for credit cards and personal loans, Shawbrook Bank warned early this year.

To add insult to injury, we now have the technology to fix this problem – so why does getting a credit card still resemble the haggling scene from Monty Python’s Life of Brian?

An offer you can't refuse

Credit card rates changing at the last minute isn’t restricted to credit builder cards or cowboy lenders.

I recently applied for a top-notch travel credit card from a well-known national bank.

I had undergone a ‘soft credit check’ and was told I had an 80% chance of getting the card. Yet when I applied I was offered a 7% higher rate than expected.

Crucially, I was only told this after I’d gone through a full credit check.

That’s bad news, because if I had declined the offer, the fact I applied would still have appeared on my credit report. The next lender I went to would have seen this mark, may have seen this as desperation and offered me a higher rate – or even rejected me outright.

At the time, I was in the process of getting a mortgage and couldn’t afford any more damage to my credit report – so I accepted the jacked-up rate.

You're subsidising something else

The most likely reason I didn’t get offered the headline rate was that the bank had doubts about me.

That’s fair enough – I don’t have much of a credit history and top credit cards are generally reserved for the safest borrowers.

In theory, banks need to charge more untrustworthy borrowers like me more to make up for losses in case I don’t pay my debts. Or, to put it another way, I’m subsidising the unsustainable teaser rate I saw on the advert.

That said, I’m happy I didn’t just get rejected. The card has some great features and I try to pay off my balance every month, so I never pay interest anyway.

But I’m still feeling a little tricked; nor can I ignore the feeling I’m paying over the odds because I came down on the wrong side of a 51:49 split.

Get a credit card with a lower interest rate

Know what you're paying

As mentioned above, I undertook a soft credit check before applying, and I’d hugely recommend you do too (get one here).

It gives you a good idea of whether you’ll be accepted for a card, without harming your credit rating, because lenders get a quick look at your record to help them make a judgement.

Now, this same technology – which has been around for several years - is finally being used to show applicants the actual interest rate they’ll get before they apply.

Experian, a credit agency, has a comparison site which will soon show customers the rate they will get should they apply for credit cards (at present just loans). According to Finextra, Virgin Money, Capital One, Aqua, Marbles, MBNA and Barclaycard have already signed up.

Real rates for credit cards are already shown in many cases on Clear Score, a free platform for accessing your credit rating.

This is all hugely encouraging, but telling customers the rate they’ll get before they apply shouldn’t be an optional extra for lenders; it should be compulsory.

What’s more, the ‘representative APR’ you see advertised should apply to 90% of successful applicants.

That would give applicants a decent idea of what they’ll pay, whilst leaving lenders the ability to offer the product to borrowers who, like me, just made the grade.

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