Credit Card use in the UK

Credit card use in America has been widely accepted for decades but never really took off in the same way in the UK. There was never the same culture of credit cards being necessary to conduct certain transactions such as booking hotel rooms, and the use of cash was never considered a poorer choice. Barclays introduced the first credit card in the UK in 1967, and although they have grown in both popularity and usage, debit cards which were introduced in 1987 remain the most popular choice, accounting for two thirds of all plastic payments.

The latest recession to hit the UK has shown a clear divide in consumer use of plastic. At one end of the spectrum there are those who are not financially well informed and typically on low incomes. Many have made poor financial decisions, borrowing on credit cards and incurring high levels of credit card debt. Lenders showed poor judgment in issuing credit cards to customers who relied on them for daily expenses including mortgage and rent payments. However the publicity which the debt counselling agencies and charities garner for their clients is not an accurate reflection of the reality of credit card usage in the UK.  

The reality is that the majority of UK credit card holders are actually financially savvy with 61% paying off their monthly balances in full. The majority of British credit card holders don’t use their credit cards as a method of borrowing, but for the built in protection and benefits which credit cards offer. Debit cards are used far more frequently than credit cards, for convenience and as a method of monitoring spending, but credit cards are utilized when there are perceived benefits.

The biggest advantage to consumers who use credit cards is for the purchase protection they offer, and the assistance which is offered if any problems ensue with purchase. Other reasons for using credit cards are to utilize fraud monitoring services, identity protection services, warranty extensions, theft and accidental damage protection, insurance cover, purchase delivery protection and travel assistance. Consumers also utilize credit cards for card holder discounts and cash back and rewards schemes.

Credit card usage remains stagnant in the UK, whilst debit card usage continues to grow. Retailers are vocal in their objections to the high costs involved in accepting credit card payments. Consumers are more likely to save than borrow on credit, and are increasingly saving in advance of purchasing.

There is much more consumer awareness in the UK than in America regarding more prudent use of credit cards, with awareness of how payments made to credit card balances are allocated. The Office of Fair Trading moved to reduce credit card penalty charges to a flat £12 fee, whilst charges in America were not addressed in the first changes enacted by the Credit Card Act of 2009, but tacked on in a later amendment.

The massive rise in consumer spending on credit cards resulted in a huge debt write off in 2005 of older debt, but since then card use has declined in real terms and the recession did not herald a new spate of credit card borrowing. Reliance and dependence on credit cards is not really the British way, and whilst they remain a purchasing tool for many they are on the whole used in a responsible and shrewd way.

Source: The Payment Council UK

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