How your credit score affects your borrowing
Your credit rating is reviewed by lenders which you are looking to borrow from, as well as lenders you have an agreement with who will monitor your credit rating on a routine basis whilst you are repaying. They apply what’s known as ‘rate-for-risk pricing policies’. Essentially this means that you are grouped based on your credit rating, therefore if you fall into a group the lender has decided to be of higher risk than previously, they will increase the interest rate for everyone in that group.
Even low-risk customers that have made all their payments on time could suddenly face an increase in their interest rate. Therefore, it is crucial to maintain a good credit score even if you are not looking to borrow any more money.
Your rights if your interest rate is increased
Increased rates can be upsetting and it may make previously manageable debt suddenly unaffordable.
Although it is not the law, credit card providers have signed up to a code of conduct agreeing to give customers certain rights. It is important to be aware of these rights so you can check you’re being treated fairly. Visit www.citizensadvice.org.uk
What credit card providers have promised
Credit card companies have pledged:
- To freeze interest rates for the first 12 months as long as you adhere to the account’s terms and conditions. After 12 months your interest rate can only be changed once every six months.
- To contact you with the details as to why your rate is being increased. lenders may tell you that it's down to changes in your credit score, so make sure you regularly check your credit score to ensure the information given to you is accurate.
- To give at least 30 days’ notice in the event of an increase being applied to your interest rate, allowing you enough time to decide whether you would like to pay off your debt in full.
- To give you 60-day period in which you can close the account and clear the debt at the original interest rate.
- Not to increase the interest rate if you are experiencing any debt problems. There are not-for-profit debt counselling agencies available to help you assess your situation, and they will also negotiate repayment terms with lenders on your behalf.
How to complain
If you feel you’ve been unfairly treated, complain directly to the lender first, if you’re not satisfied with their response or if the lender doesn’t respond to you within 8 weeks, you can then complain to the Financial Ombudsman Service.
In relation to your complaint, you can also request a review from the European Online Dispute Resolution platform: http://ec.europa.eu/consumers/odr/.