Last year credit card companies raised interest rates on over 6 million cards for existing customers and most maximise their profits by paying off the cheapest debt first.

If your credit card company has raised your interest rates or you’ve ever transferred your balance to a 0% card and not realised that card companies currently pay off the cheapest debt first, today’s announcement is good news. The government says it’s reached agreement with credit and store card providers that will give consumers better rights in five key areas. The changes won’t be introduced until later this year and the government is planning to legislate if card companies don’t stick to this voluntary code (although with an election around the corner, that part may not happen).

What will change
The five key changes will mean better rights around interest rates, credit limits and help for consumers who want to shop around for a cheaper credit card.

• Right to repay: Your repayments will always be put against the highest rate debt first. If you open a new account after the voluntary agreement comes into force, the minimum payment will always cover at least interest, fees and charges, plus one per cent of the amount you owe.

SAVVY TIP: This change will benefit around 25% of all credit card accounts. Currently Nationwide and Saga are two credit card companies that do pay off the most expensive debt first, which means your money goes further. With other credit card providers, if, for example, you transfer your credit card balance to a card provider charging 0% on balance transfers but 18% on purchases and use the card for purchases after you’ve transferred your balance, your payments will be used to clear the debt being charged 0% first, followed by the purchases at 18% (making the balance transfer pointless).

• Right to control: You will be able to choose not to receive credit limit increases in future and can reduce your credit limit at any time. You’ll also have better automated payment options. You’ll be able to reject higher credit limits and make payments online.

SAVVY TIP: You already have the right to opt out of higher credit limits and you can reduce your credit limit. However, some card companies will only let you pay the minimum, a fixed amount or the entire balance automatically.

• Right to reject: If your credit card company increases your interest rate or wants to give you a higher credit limit, you will be informed of any increase 60 days before it happens. You will also be sent two letters or emails telling you about the impending rise and you can reject the higher rate.

SAVVY TIP: At the moment, if your credit card provider wants to increase your interest rate you have the right to close your account and pay off your existing debt at the current interest rate. You should also be offered an alternative (cheaper) product if one’s available. There's more about your rights if your card company raises rates elsewhere in this section.

• Right to information: If you’re getting behind with your payments or are making only minimum payments for months on end, you’ll be given guidance on the consequences of paying back too little.

SAVVY TIP: Unless you're a compound maths genius, you probably don't realise how long it takes to pay off your debt if you're only making the minimum payments. Luckily, the website what's the cost will do it for you. As an example, if you owe £1,000 on a card charging 16% and pay the minimum, it will take over 15 years to pay it off.

• Right to compare: You’ll be sent a statement once a year that gives you the information you need to be able to compare the deal you’re on with other credit cards on the market (this is something the industry has agreed to consider, but it's not a guaranteed pledge).

SAVVY TIP: It’s not that difficult to compare deals at the moment, but what can cause problems is if credit card providers use ‘risk based pricing’ – which means they charge a higher interest rate for consumers they assess as being a higher risk. If that’s the case, you may find that your credit rating suffers as, in some cases, just the act of getting a quote for a credit card can make it look like you’ve been taking out extra credit. There’s more on why shopping around could damage your credit score elsewhere in this section.

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How to complain to the Financial Ombudsman Service

How lenders work out your credit risk

SAVVY HELP: If you're getting into debt on your credit cards, Frances Walker of the debt charity CCCS is one of SavvyWoman's panel of experts. Why not ask Frances a question by clicking here? The answer will be displayed on the website but your surname will never be used.