According to research published this week by the Office of Fair Trading, consumers find it difficult to understand financial information relating to their credit cards and are confused about how much spending on their credit card will cost them.
The research revealed that more than three quarters of cardholders do not know what APR (annual percentage rate) they are being charged, even though it is the figure which determines whether they are getting a good deal.
The OFT research suggested that 71 per cent of British adults now carry at least one credit card, with 37 per cent holding two or more. Less than half of those questioned (47 per cent) paid off their credit card balance in full each month, while 38 per cent routinely allowed debts to "roll over" to the next month and 13 per cent sometimes did so, even though this generally meant they incurred interest charges at a higher rate than if they had taken out a loan.
Of those who did not pay off the balance in full each month, the average amount outstanding was £718. But about 21 per cent had built up debts of more than £1,000.
The survey found that, while 60 per cent claimed to have a good or fair understanding of credit cards, many were unable to answer basic questions about deals on offer. Less than half (43 per cent) correctly picked the best deal from three sample adverts.
People taking part in the survey voiced support for the inclusion of a standardised summary box in all credit card marketing material, containing information such as APR, additional charges, minimum payments, interest-free periods and credit limits. The summary box proposal was supported in the Treasury Committee report. The DTI this week confirmed that it would require consumers to be given key information about credit agreements before signing a contract.
OFT chairman John Vickers said: "Consumers need key information presented in a way that is easy to understand to make good choices about credit cards."