Virgin Money hikes interest rates by 50% for existing credit cardholders – and experts warn more could follow

Virgin Money has hit thousands of credit card customers with a massive interest rate hike of 50 per cent, and borrowers elsewhere have been warned that other card providers could follow suit.

Customers selected by Virgin Money in a review of their database will see the rate they pay on purchases increase from 16.8 per cent to 24.9 per cent.

While those affected by the hike are thought to be less than 20,000 of Virgin’s two million customers, the sudden rate increase could be seen as a harbinger of a more widespread crackdown on credit card borrowers.

Balance transfer rates have also gone up from 18.9 per cent to 27.9 per cent. However, anyone applying for a new credit card will still receive the ‘old’ more generous terms.

Richard Branson’s Virgin Money, which recently bought Northern Rock,  informed cardholders in a mailshot this week. A spokesman for Virgin Money insisted that less than 1 per cent of customers have been affected by the increases.

The hike is part of a periodic review of its cardholder database: Virgin Money claims that this is a ‘long-standing practice across the industry’.

Credit card providers routinely review their rates for existing customers and will adjust the rates for some based on their previous payment history, credit scores and other risk factors. 

Some experts warned that with credit card APRs rising it could signal a trend for other providers to follow suit with similar hikes.

Clare Francis from Moneysupermarket.com  said: ‘I wouldn’t be surprised if other lenders followed suit. Credit card providers are routinely reviewing their books and looking at customers.

‘The average credit card APR has gone up from 16.2 per cent in February last year to 17.32 per cent this month.’

Sir Richard Branson who owns Virgin Money recently vowed to improve British banking for customers and shake up the industry with ‘simple, fair and transparent’ deals after he acquired Northern Rock earlier this year as part of a £747million deal.

Customers have been given 30 days notice of the rises and they have 60 days to tell Virgin Money if they do not accept them.

Lenders have been offering some of their cheapest ever deals as the Bank of England maintains the base rate at a 0.5 per cent low, but analysts expect them to tighten up on borrowing this year amid the weak economy and the fallout from the eurozone crisis, meaning more lenders could follow Virgin Money’s example.

Virgin Money’s move follows a spate of lenders including Halifax, RBS-NatWest and Clydesdale and Yorkshire Banks announcing mortgage rate rises, affecting more than a million people, blaming the increased cost of funding mortgages.