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Crunch time for credit cards – how do you choose your card?

A stack of reward and cashback credit cards

How do you choose your credit cards? The Financial Conduct Authority is looking into the credit card market and is keen to hear your views. Here’s more from the FCA’s policy director Christopher Woolard…

Whether it is buying Christmas presents for loved ones or having to deal with an unexpected broken boiler, many of us turn to our credit card at this time of year.

Credit cards provide a useful service for many people, but we want to know if the market is working well for everyone and we want to hear from you.

It may surprise you that 70% of all credit cards in Europe are held by British consumers and that in total, the 30 million credit card consumers in the UK have an estimated £57 billion of outstanding credit card balances.

Crunching the numbers on credit cards

Credit cards provide a widely accepted and secure payment mechanism that can help smooth out peaks and troughs in our spending and earnings. They can also provide protection in case there are problems with something we’ve bought. However, we think there are areas we need to look at in more detail. The FCA has published a document outlining a market study into credit cards which we will carry out over the next year. You can read the details in our terms of reference. I am keen to hear your feedback on some questions, which you can leave in the comments below.

  • Have you chosen a card because you wanted to get a zero per cent balance transfer? Or did you get your card as part of a packaged bank account? Did you think the card turned out to provide value for money? Do you switch and shop around to get the best card?
  • What are your borrowing and repayment habits? Do you mainly make minimum payments? Have you ever been caught out by a credit card balance which was a lot more than you expected? Have you borrowed too much on a credit card? Are you confident in managing how you spend on your credit card?
  • Have you ever encountered unexpected fees and charges? Are the terms and conditions clear – for example the day on which your payments are due or when special offers end?

There’s no doubt this market is important for most people. However, it’s time to put the spotlight on credit cards and find out if they are working well for all consumers.

Which? Conversation provides guest spots to external contributors. This post is from Christopher Woolard, director of policy, risk and research at the Financial Conduct Authority. All opinions expressed here are Christopher’s own, not necessarily those of Which?.

Comments
Member

I use credit cards only as a means of payment, not as a means of borrowing. Using them for the latter is uneconomical. I choose credit cards that give me the most rewards, e.g. airmiles, points or cashback. I find that American Express gives the highest value rewards, funded by its higher charges to retailers for accepting its cards. The downside of its higher charges to retailers is that fewer retailers are willing to accept American Express, but I have a Visa card or MasterCard for those increasingly rare occasions. For example, yesterday I discovered that Primark has started accepting American Express, whereas previously I had to use Visa or MasterCard.

Most retailers charge the same price to consumers for payment by credit card or debit card, even though payment by the latter costs retailers much less. Therefore paying by debit card is a bad idea for consumers. Paying by debit cards means that you pay 100% of the purchase price, whereas paying by credit card (with 1% cashback for example) means that you pay 99% of the purchase price. Consumers who use debit cards are subsidising consumers who use credit cards. However, I’m not complaining as I am a beneficiary of this.

Member

I find my credits cards, a useful way to budgetm because I only buy want I would be getting without one.

“Have you chosen a card because you wanted to get a zero per cent balance transfer?” I pay mine off in full each month they could charge 10000000% it would make no difference to me.

“Or did you get your card as part of a packaged bank account?” nope

“Did you think the card turned out to provide value for money?” They all start off as being useful but over time they move the goal posts, I managed to get £5k off a new car twice but then they lowered the amount I’d get back on purchases ( after 6 years) so I switched. That card has now closed their scheme (after 7 or 8 years) so I’m switching again. Just gonna struggle to get a good card as I’m unemployed.

“Do you switch and shop around to get the best card?” not really, I just go for what’s most beneficially to me.

“What are your borrowing and repayment habits?” Only debt I’ve ever had was my mortgage. Which I paid off during my years of unemployment. If I can’t afford something I don’t buy it simples.

“Do you mainly make minimum payments? ” No, I pay back in full.

“Have you ever been caught out by a credit card balance which was a lot more than you expected?” Nope, even with one card with a £20k limit its easy to not over spend as I don’t have the money. The reason for having a card with that much limit was to get the points when buying a new car whilst allowing the usually monthly purchases to accrue prior to being paid off.

“Have you borrowed too much on a credit card?” Never.

“Are you confident in managing how you spend on your credit card? Yep

“Have you ever encountered unexpected fees and charges?” Once, I got the year wrong on a payment, rang them up to confess my stupidity and they withdraw the fees.

Member

I have two credit cards and they are paid off fully by direct debit each month. Simple as that.

Member

I have 1 cashback credit card that I use for everything, then pay it off IN FULL at the end of the month so i never pay interest.

Very simple to make a few quid, but only if you pay off IN FULL, as if you don’t the cashback gets eaten up by interest.

Member

It is revealing that 70% of all credit cards in Europe are held in Britain – in fact startling! But I wonder how many pay off their card each month in full, as I do – do you know that Christopher? If we don’t, then such a heavy debt at silly interest rates contributes to our economy’s instability. If we do pay them off each month then we are making very good use of them.

I took my M&S card out when making a significant purchase from them and got an immediate discount. We also food shop at M&S so get a minor discount, plus good £s off and points offers. As has been pointed out above they help enormously with tracking household spending. Their downside is the temptation to buy something on impulse when otherwise, in olden days, you would have looked at your cash and maybe made a less hasty decision.

Member

Yes, in most of Europe credit cards don’t really exist, and hefty annual fees are charged not only for credit cards but even for debit cards. In many countries, a “credit card” means a deferred debit card, whereby all debits are charged from your bank account at the end of the month. It is mostly other English-speaking countries like the US where a “credit card” is similar to what we know them as.

Member

NFH,

Do you know what a “charge card” is please? I hear it mainly used in US tv, like The Simpsons, is that just another name for a credit card?

Come to think of it – it might be what we call pre-paid cards? as a Visa / Mastercard that you need to “charge” up? But that’s just me thinking out loud.

Member

I used to have a Marks & Sparks Chargecard until they moved into the 20th century and started accepting credit cards.