Credit card interest rates hit highest level in 13 years in run up to Christmas

Average credit card interest rates are now at the highest point in 13 years, figures show.

In the run up to the most expensive time of the year for millions of households, rates on plastic have hit their highest level since 2006.

The average APR (annual percentage rate) available for those making credit-card purchases reached 24.7% in September - the highest figure since website Moneyfacts started its records in June 2006.

It said credit cards have seen a significant increase in APR charges generally in recent months.

Rachel Springall, a finance expert at Moneyfacts, said some providers have pulled their low rate deals altogether while others have increased their interest rates.

She pointed to recent figures from trade association UK Finance suggesting consumers may be making stronger efforts to shift their credit card debts to interest-free alternatives or clear their balances completely.

"Consumers who turn to credit cards for their everyday purchases will find that the cost to borrow is starting to rise, as the most lucrative low rate cards have worsened," Rachel explained.

"In fact, over the past quarter, we said goodbye to the lowest rate purchase credit card on the market and have seen rates increase on these lucrative offers."

Tesco Bank was one of the first to pull its low APR card (PA)

Tesco Bank recently pulled its 5.9% Clubcard Credit Card, which was the lowest rate card on the market.

In the same period, Bank of Scotland, Halifax and Lloyds Bank increased the purchase rate on their credit cards, rising from 6.4% to 9.9% APR.

"There were other increases too, such as with MBNA’s Low Fee 0% Balance Transfer Mastercard and Long 0% Balance Transfer Mastercard, up from 19.9% to 20.9% APR," Rachel said.

"In addition, Creation made increases to its IHG Rewards Club credit cards, with its standard card rate increasing from 18.9% to 22.9% APR and its premium card, which includes a £99 annual fee in the APR calculation, up from 41.5% to 45.1% APR (19.9% to 22.9% pa)."

Customers can beat the hikes by moving their debts to an interest-free alternative, or, where possible, by clearing their balances.

"It is worth pointing out that credit card providers will only offer the lowest rates to certain customers, as part of their risk-based pricing," Rachel added.

"During a period of economic uncertainty, it wouldn't be unreasonable then to see credit card companies increase the interest rates charged to either existing or new customers if there is a potential for customers to default.

"However, when customers are notified within 30 days of the provider making any change, there would be plenty of time to switch."

Rachel added that customers should take every opportunity to pay more than the minimum repayment, particularly if they have an interest-bearing card.

For example, if a borrower who makes a purchase of £3,000 on a typical credit card and repays just £100 per month will have the debt linger for over three years and it will cost them £970 in interest*.

"This alone then should reaffirm the importance to clear debts faster or take advantage of an interest-free deal to give customers more time to spread repayments."