Credit cards with low credit limits and high interest rates are increasingly popular among low earners in Britain, says a new study from Moneysupermarket.com.
The research, conducted in April this year, used data from two million credit card enquiries made through the site’s Smart Search eligibility tool in 2016.
It also shows a correlation between the popularity of high-interest cards, which the site called ‘credit-building cards’, and the amount of individuals’ incomes. The less a person earns, the study shows, the popularity of credit-building cards increases.
It said for every £5,000 less a person earns each year, the popularity of credit-building cards increases by five percent. It added that these cards are available to those who can’t normally access mainstream credit.
Moneysupermarket’s Smart Search tool shows consumers which credit cards they are most likely to be accepted for, after inputting some personal data, to avoid being declined on some applications which could damage their credit score.
The study found that on a whole, credit card enquires increased by 28 percent last year, from around 2,900 people enquiring a day in 2015 to more than 3,700 in 2016.
Those consumers enquiring about credit-building cards are, according to MoneySuperMarket, more likely to earn under £15,000 than other enquirers.
These consumers have an average annual income of £19,862, which is around £8,000 less than the overall national average and close to £15,000 less than the average spending card enquirer.
The research also found that council tenants are five times more likely to enquire about credit-building credit cards than homeowners, and 2.4 times more likely to be unemployed compared to other enquirers.
Other cards such as those designed for paying off debt – zero percent balance transfer credit cards – received more enquiries than any other type of card in 2016. These enquiries accounted for nearly 30 percent of all MoneySuperMarket searches last year.
This figure rose to 37 percent when the search included credit cards that offer both zero percent interest on balance transfers and purchases.
The price comparison site found someone who earns more than £40,000 is nearly three time more as likely to enquire about a rewards or overseas credit card than someone who earns less.