Page last updated at 13:29 GMT, Thursday, 21 January 2010

Default levels on credit lower than expected

Credit cards
Lenders have been more choosy about who gets credit

Lenders overestimated the number of people who would default on unsecured credit such as credit cards and loans, a Bank of England report has said.

Lenders reported that default rates on unsecured credit fell in the last three months of 2009, contrary to their expectations of an increase.

But the amount lost through defaults rose during the same period, the Bank's Trends in Lending report said.

Consequently, the cost of interest on credit card borrowing rose.

Changes

The margin between the Bank rate and the interest rate on credit cards is much wider than a year ago owing to the heightened credit risk, but the difference remained relatively static on personal loans, the report said.

Lenders have been stricter in who they lend money to as a result of the economic downturn.

However, default numbers were lower than expected because they thought unemployment would be worse than it has proved to be.

The number of people out of work in the UK saw a surprise fall in the three months to November.

Consumers have been keen to pay off their unsecured credit bills, and lenders told the Bank that they expected this trend to continue.



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