Credit card industry suffers as consumers shop around

So-called "rate tarts" who swan about from one credit card provider to another looking for 0% finance deals are costing the industry around ?1bn a year, according to figures published today by PricewaterhouseCoopers.

The company's study of the UK consumer credit market, entitled Precious Plastic 2005, also predicts that the number of adults holding a credit card will increase by a further three to four million or 10% over the next few years. Such an increase would mean that around 73% of the population held a credit card.

Credit cards and personal loans are also growing in popularity compared with other consumer credit products, with a third of the ?180bn of unsecured consumer debt in the UK now owed to credit cards.

The firm said the number of cards issued is expected to continue to increase, although the number of cards actually used by consumers will decline.

Currently, only one in every seven new credit cards is issued to a consumer who does not already have one, though the report anticipates that the growth of chip and pin, where consumers will be required to remember a four-digit number to carry out a transaction, will lead to a reduction in the number of cards a person uses.

Richard Thompson, partner at PricewaterhouseCoopers, said: "There is a clear danger that issuers are growing a breed of so-called rate tarts who will move perpetually from issuer to issuer to finance their debts at no cost."

Mr Thompson said that the losses seen by credit card companies could make it harder for people to take advantage of cheap introductory offers as companies concentrate on keeping hold of existing customers.

"We anticipate that in future, issuers are likely to become increasingly selective about which customers they offer balance transfers to and they will focus more heavily on customer retention," he said.

He added that, despite the rapid growth of the consumer credit market, the burden of servicing this debt has not increased significantly as a percentage of household income, largely due to a fall in interest rates charged by lenders.

"We anticipate that over the next few years the credit card industry will achieve penetration of 73% of the population, which will still be below current US levels of around 85%."

Recent industry data also shows that consumers now receive one in four advertising mailings from the credit card industry, which experiences the lowest response rates of all types of direct marketing mail.

Increasing numbers of consumers have been switching deals from one cheap credit card to another as lenders compete for business, but there have been concerns in the past that applying for several different cards could have a detrimental effect on borrowers' credit ratings. Each time an application for credit is made, a record is kept on the credit file for one to two years.

However, James Jones, consumer affairs manager for credit reference agency Experian, said chopping and changing deals will have "little effect" on a credit rating.

"A lot of lenders are put off by a large number of applications for credit, as this can suggest that the person is desperate, or even that their name is being used fraudulently," he said.

"However, a lot of these 0% deals only last for six to nine months, so people are likely to apply for a new card no more than once or maybe twice in a year, which will not do your rating any harm."