BBA: 40% of credit cards not attracting interest

credit card borrowing

CREDIT card borrowing is growing at 2008 levels, the British Bankers' Association (BBA) said this week.

The increase indicates that banks and consumers are becoming more confident about the recovery and doesn't seem to be linked to bad debt, BBA economists said.

In fact, although credit card spending has increased, the proportion of credit card balances accruing interest has fallen to just 60%.

bba april 2014

SOURCE: British Banking Association (BBA).

More people than ever are using credit cards for rewards and very short term borrowing, or taking advantage of interest free purchases offers, rather than paying to borrow on plastic.

Growth in lending

As long as people are on top of their borrowing and are confident in their ability to repay debt, this is a good sign.
Michelle Highman, Chief Executive of The Money Charity

Borrowing on credit cards is growing by 5.5% annually, according to BBA figures, levels which were last seen in 2008.

Credit card borrowing has been accelerating for the past two years, after dropping briefly in 2011 and 2012.

Growth is still far from it's 2005 peak, when lending rates jumped up 15%, however.

Michelle Highman, Chief Executive of The Money Charity, told us that banks are becoming more willing to lend.

"As long as people are on top of their borrowing and are confident in their ability to repay debt, this is a good sign," she said.

"It's also encouraging to see that more than 2 in 5 credit card balances aren't attracting interest," Highman added.

More borrowing, less interest

At one point more than 4 in 5 credit cards were incurring interest, the BBA say.

And in all the time the BBA has been collating data on credit cards, beginning in the mid '90s, the proportion of cards not accruing interest has never before dropped below 3 in 5.

The figures indicate that "more customers are borrowing wisely without incurring charges [and] providers are offering useful products that give people more control over how they spend their money," BBA chief economist Richard Woolhouse said.

The BBA's conclusion is backed by a FICO study released earlier this year.

The study found that just 5% of standard credit card users weren't keeping up with their payments in December last year.

In 2011, about 7% of credit cardholders fell behind on their borrowing.

Borrowing moving elsewhere

Of course, an increase in the proportion of credit card balances that are interest free could also simply be an indication that wealthy consumers willing and able to pay off in full are spending more.

It could also indicate that riskier borrowers who are likely to fall behind are borrowing elsewhere.

Overdrafts and payday loans continue to be popular ways to borrow, despite high costs, for example.

The Money Charity warns that consumers should think carefully before taking out any borrowing and seek help if they begin to have trouble keeping up with their commitments.

"It's important to have a plan to pay off any debt you take out, and to get help early if you're struggling," Highman says.

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