Evaluation Scotland Wales
The UK Strategy for Financial Wellbeing is taking forward the work of the Financial Capability Strategy Opens in a new window


A review of credit card literature

Evidence type: Review i


Examining consumers’ behaviours in choosing and using credits cards, this report was commissioned
to present an empirical review of the credit card market, with the intention of providing insight for
policy implementers in consumer protection within the UK market

The study

The report reviews the literature on credit card use by consumers, to provide insight for policy implementers in consumer protection in the UK market. The review looks at credit card use from economics, financial, marketing and psychological perspectives and discusses the following questions:

  1. How consumers source and switch between credit cards.
  2. The determinants of borrowing behaviour using credit cards.
  3. How consumers repay credit card debts.
  4. Borrowing costs including interests and fees that consumers pay on credit cards.
  5. The extent to which behavioural biases drive consumers’ behaviours.

Key findings

The results are summarised as follows::

  1. Searching and switching: Cost of switching has reduced over recent years, but remains highest amongst those with high balances who may end up with lower levels of credit. Banks may exploit this, charging these customers more. Consumers are sensitive to interest rates.
  2. Borrowing behaviour: Growing competition amongst issuers has led to an increase in solicitation of consumers with competitive offers. External factors such as increasing credit limits, reward schemes and cash back all influence borrowing and can increase levels of debt. Contracts are semantically complex, making it hard for consumers to understand the true costs involved.
  3. Repayment: There is some evidence that balance and repayment vary by demographics such as education, and by generational cohort. Overall, most payments are either the full amount or the minimum. Warning consumers about the risk of minimum payments isn’t enough to increase repayment amounts, but other strategies such as increasing that amount or presenting information about alternative approaches could be more effective.
  4. Borrowing cost: Banks are profiting from fees and charges on credit cards. Penalty fees may serve to compensate banks for taking risks. However, the literature does not exclude the possibility that banks are charging excessively. Consumers are good at choosing the right contract, and good at switching after initial mistakes.
  5. Behavioural bias: Households, regardless of income or education, often hold both credit card debt and liquid assets simultaneously, which is not optimal. Credit card use diminishes the vividness with which consumers feel they have spent money. Some consumers have present bias, which emphasises current benefits over future plans, and can lead to poor choices, over-optimism and higher debt.


The review concludes that although consumers are generally behaving rationally to maximize their own utility, some are still shown to misuse their credit cards, make obvious mistakes, suffer from various behavioural biases and sometimes suffer exploitation by the banks. The authors recommend both increasing consumer awareness of the issues, via adverting or educational programmes and increasing regulations on card issuers, such as limiting fees, and making contracts easier to understand.

Points to consider

  • Methodological strengths/weaknesses: The review is methodologically strong in that it covers a wide range of papers, with over 100 listed in the references, representing a range of academic disciplines including economics, finance, consumer research, behavioural economics and psychology.
    • However, there is no information given about the method used to source and select the papers included in the review, so we can’t know whether a systematic approach was taken or whether there are any omissions.
  • Relevance: The papers chosen have mainly been published later than 2000 so the insights are still relatively current. The impact of events such as the financial crash of 2008 are referenced, and although the market has no doubt been affected by the more recent coronavirus pandemic, the findings around consumer beliefs, attitudes and behaviour are still likely to hold true.
  • Generalisability/ transferability: The authors note that the majority of the literature focuses on the U.S. market, but that they believe that the findings are highly applicable to the UK owing to the similarities between both countries’ credit card markets. Given that the study focuses on consumer behaviour, and the drivers and behavioural biases that influence that behaviour, much of the study is also likely to be generalisable to consumers in other developed nations, even if credit card markets operate differently.
    • The authors suggest that the study is aimed at policy implementers in consumer protection. The findings here are likely to also be of interest to people in other roles relating to consumer financial behaviour, such as policy makers, support agencies and those in education roles.

Key info

Year of publication
United Kingdom, United States
Contact information

Sumit Agarwal: Low Tuck Kwong Professor, Departments of Economics, Finance and Real Estate, National University of Singapore

Jian Zhang Department of Finance, National University of Singapore