61.9 million. That’s the number of credit cards that had been issued to UK residents by July 2019. For a population of just over 67 million people, it’s an astounding number when you work in the number of UK residents who are ineligible for a credit card due to their age – and that’s without counting those who stoutly refuse to pay on plastic.
With UK credit card debt sitting at £67.9 billion in April 2020, there’s no denying that Britain is a nation of borrowers, but just why are credit cards so popular, and what alternatives are available?
When were credit cards introduced in the UK?
Despite their gargantuan popularity, credit cards a relatively new development in the world of personal finance, with the first Barclaycard being issued in the UK in 1966. It was then another six years until Access (provided by Midland Bank) entered the market as competition in 1972 and Barclaycard cemented itself as the leading issuer of credit cards in the UK – one of the reasons that has led to its now 10 million strong membership base.
Back then, many retailers were sceptical of credit cards and the signatures that you now rarely have use for on your card were scrutinised against the signatures on photo ID documents to ensure that a purchaser was legitimate. When paying with a credit card back then, the customer’s account number would be embossed on the front of their card and this would be copied across onto a slip of paper. Three copies in total were made (one each for the bank, customer and the retailer) and none of the contactless or Chip & PIN functionality that you see today was involved.
Why use a credit card?
That’s the million dollar question – or rather the £1,369 question if you look at the average credit card debt figure for UK adults. There are lots of reasons to use a credit card over a debit card or another payment method, but some common themes apply across the board.
For one thing, credit cards generally offer a more substantial degree of fraud protection than high street banks – meaning that when spending on your credit card you can take advantage of the added security measures the providers implement. Whilst money taken from your bank account (whether by a thief or a fraud) may be returned after a lengthy investigation, credit card spends can be flagged to your card provider and you won’t have to pay for them once they’ve established that something is afoot.
It goes without saying that credit cards are also used for the rewards that often come attached to them. From American Express offering travel booking discounts to the many cards that provide cashback on certain spending, a credit card could help you to actually save money – just so long as you pay it off before the interest charges start eating into that saving.
Finally, one of the most common reasons for taking out a credit card in the first place is to build your credit score. Almost every adult has a credit file which is maintained by various credit reporting organisations who examine your history of borrowing and assign a score to represent your relative creditworthiness. Affected by things like how responsibly you use your available credit and whether you have a history of letting accounts slip into arrears, a good credit score can see you able to get better offers on future credit whilst a poor one leave you unable to access any lending whatsoever. Using a credit card gives you the chance to prove that you can be trusted with borrowed money, and spending whilst making repayments on time can go a long way to improving your credit rating.
What are the best alternatives to credit cards?
Despite their popularity credit cards aren’t the best option for everyone, and some people staunchly refuse to use them. If you fall into that camp, or simply want to understand the options available to you, then it’s worth knowing about the major alternatives to credit cards.
Aside from the obvious use of your current account and debit card, an overdraft could provide a comparable solution to credit card borrowing through your existing relationship with your bank. Banks understand that people need to borrow money, and as they deal with other financial aspects of people’s lives, they also have an unrivalled knowledge of the financial situation faced by their customers. An arranged overdraft will allow you to withdraw money from your current account beyond the money you have deposited there, up to an agreed limit. In some cases, a bank overdraft can even be interest-free, and so taking this approach to borrowing could leave you better off than if you were to use a high-interest credit card.
Another well-used borrowing option is the short term loan – which often comes at a cheaper rate of interest than credit card spending. With options to pay back money over several months or even years, a short term loan could see borrowers given access to a pool of money to use as they wish without the complexities of applying to a high street bank for a more traditional loan.
Available even to those with a poor credit history (provided they can show that their current circumstances will allow them to realistically repay what they owe), some of the best short term loans can be found through reputable online credit brokers like Little Loans. Matching applicants with the direct lender who is most likely to approve them for a flexible short term loan, borrowing from a short term direct lender via a broker is one of the easiest and fastest ways to get your hands on some extra cash when you don’t want to take out a credit card.
The bottom line
Nobody can deny that credit cards are popular, and despite only entering the UK market in the latter half of the 20th century, they’ve truly become a force to be reckoned with. Credit card spending has its perks, but for those who don’t want to pay in that way, there are alternatives available, and a short term loan or arranged overdraft could be just the ticket for cash strapped borrowers.