How consumers use their credit cards

Our research into credit card consumers who carry over balances charging interest found that:

• Purchases of a credit card can be proactive or reactive. Proactive purchases are often triggered by a consumer’s need to overcome a pressing but essential cost (e.g. boiler repair) with signs that consumers attached greater weight to short-term rather than long-term implications of their choice. These consumers had often resisted getting the card for quite a while before the purchase.
• With reactive purchases of credit cards, choices were triggered by providers. Consumers were susceptible, for example, to direct mail and pre-filled applications, when they were in tight financial situations. Cards being offered alongside current accounts and pre-filled applications also appear to contribute to some reactive purchases.
• Once consumers decided to get a card, they did little shopping around. Where consumers did shop around, it tended to be via internet comparison sites and/or comparing two or three pieces of direct mail.
• Those who did shop around tended to 'anchor' on one feature, e.g. on headline APR or 0% balance transfer period.
• More sophisticated consumers who were aware of 0% balance transfer deals, tended to search for the longest period.  0% balance transfer deals were seen as a period of non-payment of interest rather than as a period to pay down debt.
• Our research found widespread over-confidence, with some assuming that they would quickly repay the initial balance, but without having any rational calculation or self-assessment to support this.
• Our research suggested that some consumers can reach their credit card limit remarkably quickly and that limits can then be quickly increased by the provider.
• Some consumers quickly fall into the habit of paying off the minimum each month, some considering it a non-essential, and concluding that there is little consequence in missing payments now and then.
• Some consumers found that after two to three months of taking out the card, their debt repayment appeared impossible.
• Our research found little understanding of specific credit card features, such as how APR translated into monthly payments, or the implications of making and sometimes missing minimum payments.
• Consumers often have little idea how they will pay off the card debt, with few giving it much thought. Although half said they would cut up the card tomorrow if their debt was paid off overnight.

Consumers may be subject to certain inherent behavioural biases when choosing and using credit cards that prevent them from acting in their best interests.

These can include limited attention (focusing on the more striking features of a product) and present bias (favouring short-term benefits above long-term considerations).  

Card usage and repayment patterns

Almost two thirds (61%) of UK adults have a credit card (UKCards Plastic Cards 2013[1]).  Our data suggests this is evenly spread across most adult age groups, apart from those aged 18-26, where credit card usage is lower. According to UKCards[2], about 90% of households with income more than £50,000 have a credit card; this drops to a third for households with income less than £10,000 (UKCards Plastic Cards 2013).   

Sixty per cent of consumers with credit cards report that they pay off balances monthly (UKCards).

Our evidence indicates that older cardholders are more likely to do this. Younger more financially stressed consumers, e.g. young families, are more likely to carry balances. 

There is evidence of some consumers switching between balance transfer deals.

For example, according to a consumer survey by Mintel[3], 8% of cardholders reported transferring an outstanding card balance to a lower rate card in 2012.