The Bank of England reports new record interest rates for credit cards

The effective credit card interest rate rose 34 basis points to a new record high of 20.76 percent in July, new Bank of England data shows.

Some experts have warned that if credit utilization continues to be high, more banks and building societies could suddenly and without warning reduce people’s credit, card and overdraft limits.

Net borrowing by individuals fell to £1.2 billion in July from £1.6 billion in June. This was triggered by a decline in borrowing via consumer loans such as car dealership financing and personal loans.

Credit card borrowing, however, remained broadly flat for the third straight month at £600m.

New high: The effective interest rate on credit cards rose 34 basis points to a new record high of 20.76% in July, figures from the Bank of England show

Riz Malik, director of independent mortgage broker R3 Mortgages, said: “Rising APRs are clearly a concern for people with fluctuating interest rates on their credit cards.”

“However, another emerging threat is sudden and unexpected reductions in credit card limits.”

He explained: “I recently watched a credit card company inform a customer that their credit limit had been reduced from £14,000 to £1,000 for non-payment.”

“The same pattern is emerging with bank overdrafts. This reflects what happened in the early days of the credit crunch and could leave many vulnerable.”

Neezam Romjon, co-founder of Rebus Financial Services, said: “As more and more people rely on short-term credit to meet the rise in the cost of living, this is worrying.”

“The good news is that there are still 0 per cent transfer deals for those who qualify. Not sticking to that will prove to be a costly mistake.”

Borrowing: Net consumer borrowing by individuals fell to £1.2 billion in July, down from £1.6 billion in June

Meanwhile, Mike Staton, a director at Stanton Mortgages, said: “With costs ever increasing, people are turning to lines of credit to sustain a lifestyle that wasn’t possible 20 years ago and this is taking a massive toll on a homebuyer’s creditworthiness.”

“If you want to buy a house, you should stay away from credit cards.”

According to the Bank of England, the annual growth rate of all consumer credit eased slightly to 7.3 percent in July, down from 7.5 percent in June.

Likewise, the annual growth rate for credit card and other forms of consumer credit fell to 11.7 percent and 5.5 percent, respectively, from 11.9 percent and 5.6 percent, respectively, in June.

The effective interest rate, which reflects the actual cost of borrowing for new personal loans, rose to 8.61 percent in July from 8.41 percent in June.