Credit card changes explained

New changes to credit cards aim to give customers greater flexibility and control over their accounts.

The changes, which came into effect in January and April of this year, will affect the order of payment and ban credit card cheques unless requested.

Here, Citizens Advice and the UK Cards Association explain the new rules and what they mean for consumers.

1. The most expensive debt will always be paid off first

Before, most credit card companies used your repayments to pay off your cheapest debt first. This meant you paid interest on the more expensive debt, such as cash withdrawals, over a longer period of time.

2. On new accounts, making the minimum payment will still reduce the outstanding balance.

For new accounts opened from April 1 2011, credit card companies must set the minimum payment at a rate that reduces your actual balance by 1pc each month. Before, if you made the minimum payment, this would generally only cover fees and interest charges and wouldn’t reduce your outstanding balance.

3. Credit card cheques will only be sent on request

Before, credit card companies could send you cheques that you could use to transfer balances from other credit cards, withdraw money against your account, or pay for goods and services. Now you will only be sent these cheques if you ask for them.

4. More choice and control over credit limit increases

Before, your credit card company could increase your credit limit without asking you. Now, they have to contact you if they want to increase your credit limit. You will have 30 days to decide whether to decline the increase. This gives people more control over their spending.

5. Clearer communications about interest rate increases

Before, if credit card companies increased your interest rate and you chose not to accept it, your account would be closed and the outstanding balance repaid at the existing rate over a reasonable period of time. Now, once your credit card company has contacted you, you will have 60 days to decide whether to reject the new rate. This means you will have more time to explore alternative deals.

6. More flexibility about how much you pay towards your bill.

Before, if you wanted to set up a regular payment you would normally have had to pay either the outstanding balance, or the minimum payment each month. Now you can choose to repay any amount you want between the minimum and the full balance.