/ Money

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?.


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.

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.

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

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.

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.

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.


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.

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

Yes, a charge card is a card that operates like a credit card except that you have to pay off the balance in full every month. It seems that most of us above (including me) use credit cards like a charge card. Most credit cards have no annual fee (at least in the UK) because they are subsidised by those who don’t pay off their balance in full and pay interest. Charge cards nearly always have an annual fee because this subsidy doesn’t exist. That’s why, for example, American Express charges an annual fee on its charge cards, but doesn’t charge an annual fee on the equivalent credit card. The best thing to do is get a credit card and use it like a charge card.

The Marks & Spencer Chargecard had no annual fee, but I have no knowledge of any others.

Unlike using an American Express card, with the M&S Chargecard the retail and payment transactions were in a closed loop involving no other company; Customer loyalty, convenience, and a monthly one-hit payment facility for a broad range of merchandise presumably generated higher sales levels to support the cost of operating the chargecard.

I used to have an M&S Chargecard in the 1990s, but I stopped using it when M&S started accepting credit cards. It was the same story with John Lewis. Although it was called an “M&S Chargecard”, I believe it was more like a credit card with an interest rate and no obligation to pay in full every month.

My credit cards save me carrying large amounts of cash around or from writing unnecessary cheques. Recently they have also helped with on line shopping. One is linked to my bank account and one is a loyalty card. I regard these as useful tools rather than as debt producers. Life would be more difficult without them, and though perhaps I should be investigating cash back cards, that side of things is less important than ease of use and daily convenience. Thus, I am not tempted to look for other providers. My debit card is used for cash withdrawal and in places where a charge is made for using a credit card but not a debit card. It is also used at the post office. In the past there have been times when either Visa or Mastercard has been refused. I like to have one of each. I also like to have two debit cards incase an ATM decides to swallow one of them.

You say that one of your credit cards is linked to your bank account. I’ve never come across such an arrangement in the UK. Or do you mean that your credit card balance is paid off by direct debit from your bank account once a month?

We’re in weasel words territory again here with debit cards which are actually expenditure cards, and credit cards which would be more honestly called debt cards. The former is a ‘pay now’ card and the latter is ‘pay later plus interest’.

John, I disagree. The latter (credit card) is not necessarily “pay later plus interest”. If you pay later in full, then there is no interest. This approach has two advantages:

1. Interest-free period while you continue to earn interest on the money in your bank account or save interest on an offset mortgage.
2. Rewards, e.g. airmiles, points or cashback

Yes; Thanks NFH – I over-simplified it. The point I was trying to make is that, ‘credit ‘ is a more appealing word than ‘debt’ and might give a false impression. Astute people who manage their money wisely [like you and me of course], and use it to their own controlled advantage during the repayment period, are not the target of the banking industry’s machinations – we are a lost cause and probably a nuisance – but there are many people seduced by the temptations thrown in front of them to spend more money than they can afford to repay on demand.

Very true. Consumer debt culture is prevalent in the UK, whereas it doesn’t exist in many other European countries. British consumers buy goods that they cannot truly afford because credit/debt is so easy to obtain.

“we are a lost cause and probably a nuisance”, not sure I quite agree with that, we must generate a nice steady supply of dosh for card providers in the 1-3% they levy to the retailers on each purchase. And if you don’t have a card then oh look you get to pay the price including levy too. How generous are the card providers and retailers in making sure the none card holders don’t feel left out.

“we must generate a nice steady supply of dosh for card providers in the 1-3% they levy to the retailers on each purchase” – Where did you get this figure from? On page 42 of Which December 2014, it says about interchange fees “Currently, credit card fees are typically around 0.8%, but there are plans to impose a cap of 0.3%, which may be in force by mid-2015”.

That’s roughly what it was 15-20 years ago, I guess its changed.

On a this money webpage article from last year is

What the CMS says a retailer typically pays on a £100 sale:
Cash: Zero. The shop gets £100
Debit card: 8p per transaction. The shop gets £99.92
Credit card: 0.8 per cent. The shop gets £99.20
Premium/rewards card: up to 1.6 per cent. The shop gets £98.40

Back to our views for the FCA, I think it would be detrimental for consumers if a cap of 0.3% is imposed on the fees paid by retailers for accepting credit card payments. The Credit Cards (Price Discrimination) Order 1990 gave retailers the right to add surcharges for payment by credit card, which had previously been contractually prohibited by the banks and card networks. The Consumer Rights (Payment Surcharges) Regulations 2012 subsequently limited surcharges to the cost borne by the retailer. If retailers don’t like the fees that they pay to accept credit card payments, then they can either pass the cost on to those paying by credit card or they can choose to accept payment only by debit card. The existing strong legislation in this area and competitive market negates the need for an arbitrary cap on these fees. A cap would be unnecessary interference in a free market and is not merited.

I well remember when you could negotiate a discount with a store if you paid by cash instead of by credit card. This was then made illegal! Where is the logic in that? It just persuades more people to buy “on tick” – presumably it was thought good for the economy and particularly for the bankers. We do pay interest in effect even if we pay off our credit card in full each month – I calculate if the “fee” is 0.8% of the transaction it is equivalent to about 10% a year). Perhaps we should get back to discounts for cash?

Malcolm, it was never made illegal. Until the 1980s, discounts were often given for paying by cash. The banks and card networks didn’t like this, so they imposed contractual restrictions on retailers, forcing them to charge the same for credit card transactions as for cash or cheque. The government thought these restrictions were anti-competitive so the Credit Cards (Price Discrimination) Order 1990 prohibited such contractual restrictions, so that retailers could go back to operating dual pricing, i.e. a discount for cash or a surcharge for credit cards. Therefore since 28th February 1991, retailers have been at liberty to give discounts for cash or add surcharges for credit cards. Since 5th April 2013, the Consumer Rights (Payment Surcharges) Regulations 2012 have limited the price differential to the difference in cost to the retailer. Therefore travel agents can no longer surcharge 2% for credit card payments when in fact it costs them only 0.8%.

NFH – thanks for putting me right! Whenever I have tried to get a cash discount if I didn’t pay by card I’ve been told they can’t do it. If the difference is only likely to be 0.8% it’s hardly worth the effort!

Yes, you also have to factor in the cost of accepting cash payments. Cash is expensive for businesses to handle, both in transport costs and bank charges. This is why some retailers give cashback on payments by debit card. Given that it costs a fixed price (e.g. 8p) to accept debit cards which is nearly always cheaper than accepting cash, it makes sense for retailers to offload as much cash as possible on to willing customers and instead receive the amount of the cash electronically as part of a debit card transaction.

smike says:
29 November 2014

A bit off subject, but if I might …

The Government needs to intervene to increase the minimum percentage payment that can be made on a Credit Card.
It is now so low, that the many people paying the minimum each month will not pay off the initial purchase for many years, even if they made no subsequent purchases.

A government willing to move on this would encounter ferocious opposition from the Banks or other lenders, as as the customer paying around 18 percent interest, compounded monthly. This is an extraordinary high return to the bank for a low risk loan. No wonder that the UK has over seventy percent of the whole EU’s credit card debt.
It would also be necessary to increase the minimum repayment over a year or two as those with larger balances would otherwise be unable to repay, but once fully in place, such an initiative would reduce the user’s interest spend, and make the whole economy more resilient in recessions.

No wonder that the UK has over seventy percent of the whole EU’s credit card debt – That’s not what the article says above; it says that “70% of all credit cards in Europe are held by British consumers“. I suspect that the UK’s percentage of the EU’s credit card debt could in fact be much higher than 70% because British consumers tend to spend more recklessly on their credit cards than consumers in other European countries. In much of Europe, a “credit card” means a deferred debit card whereby all debits are simply deferred until the end of the month when they are settled in full. I suspect that only the US has a worse consumer debt culture than the UK.