Depending on the way you use your card, you could also benefit from a whole heap of appealing extras. This could see you earning rewards on your card spending, while benefiting from handy features such as travel insurance, airport lounge access and other travel benefits, so you can enjoy even more value on your card.
But of course, not every card is designed to suit every cardholder. You need to know how to choose the right credit card for your needs if you want to make the most of all the benefits a credit card can offer. So, before you jump into just any old credit card, you need to do some homework.
Don’t worry, it’s not as boring as it sounds. We’ve got your back with this easy-to-understand guide. Here you can find out all you need to know about credit cards, from how they work to what to look for. Thinking of applying for a credit card? Read this first!
A credit card is essentially a tool for accessing credit. Working as an unsecured revolving line of credit, it allows you to make purchases up to your approved credit limit, which you will then pay off according to the card’s terms.
At the end of each statement period, you will receive a statement, which will tell you how much you owe. This will usually involve a minimum repayment amount, which has to be paid by a given due date. You have to pay this amount to avoid being charged a fee.
However, the best way to deal with a credit card is to pay off the entire balance each statement period. This lets you avoid interest accruing on your balance, while making your card easier to manage.
When you apply for a credit card, you will provide information to the card provider regarding your income, and any assets and debts in your name. Using this info, the card provider will determine your credit limit.
Your credit limit is the amount you are approved to spend on the card. On basic cards, this can be as low as $500, while on premium cards, it could reach $100,000 and above. Just remember that having a credit limit is not an invitation to spend up to it.
You can reduce your credit limit to your card’s minimum limit if you want to avoid overspending.
Just like a personal loan or home loan, a credit card is a financial product that attracts interest. If you fail to clear your balance each month on your credit card, your card provider will apply interest to that balance at a rate determined by the card’s standard interest rate.
When comparing credit cards, you will see each card has a purchase rate and a cash advance rate. The purchase rate will be applied to purchases that carry over month-to-month. The cash advance rate will be applied to cash advance transactions (such as ATM withdrawals) from the date they are made.
Your card may offer an interest free period on purchases, usually 44 or 55 days. As long as you pay off your balance each month, this feature allows you a certain number of days where you will pay no interest on your purchases. This is the smartest way for you to keep costs down on your card.
When you use your credit card to withdraw cash from an ATM, to gamble, to pay for foreign currency or other cash-style transactions, this is called a cash advance. While it can seem like a good idea, this is not a good way to use your card. Not only will you likely pay fees for each cash advance, you will also typically pay a higher rate of interest on the transaction from the day you make it.
Avoid using cash advances
Understanding the various costs associated with having a credit card can help you choose the right card for you, while also helping you get smarter in the way you use it. Here are some costs to keep an eye out for when comparing credit card options:
Annual fee: Most cards come with an annual fee. Basically, this is the cost the card provider charges you for keeping the card. While there are some cards with no annual fee, other premium options can charge hundreds of dollars in annual fees each year.
Interest rates: Each credit card has a rate of interest it applies to purchases and cash advances. While you may be able to avoid paying interest by clearing your balance each month, if you don’t do this, you could pay between 9% p.a. to 25% p.a. on your carried-over balance.
Credit cards can come with all sorts of fees. You may pay an over-limit fee if you spend over your credit limit, a late payment fee if you don’t make a repayment on time, or a foreign transaction fee if you make a purchase in a foreign currency. Other fees to be aware of include rewards fees and cash advance fees.
Credit cards are not one-size-fits-all. The card that works for you is unlikely to be the card that works for your mate, your mum, or the bloke down the road from you. However, getting a good understanding of what types of cards are out there can help you make the right choice for you... or your mate, your mum, or the bloke down the road, should they happen to ask for your advice.
These cards charge a lower than average rate of interest, making them a good option for cardholders who tend to carry a balance. While they may not be heaped with features, they can help you keep interest costs down as you work on paying off your balance.
These cards charge no annual fee, meaning they work well for cardholders who want to save on outgoing costs. Given their basic nature, they can also be a good option for those who want a simple card, or those who only keep a card for emergencies.
These cards are designed to suit cardholders with a low income. They generally have a lower minimum income requirement, making it easier to get approved if you earn less. They may also feature a low minimum credit limit, which can work well for those who want to avoid the temptation to overspend.
These cards are designed to appeal to cardholders in full time education, and can be easier for students to apply for. Cardholders may benefit from certain features, such as a lower annual fee, but be aware of the purchase rate, especially if you may carry a balance.
These cards allow cardholders to earn rewards on their card spending, typically in the form of frequent flyer points, retail rewards or cashback. These cards typically suit bigger spenders who always pay off their balance each month.
These cards can be gold cards, platinum cards or black cards, and tend to offer extra features, a higher credit limit, and a higher earn rate on rewards options. As they usually have a higher annual fee, they work well for cardholders who don’t mind paying more for their card to enjoy value on the extras offered.
These cards are designed for business owners who want to separate their business and personal spending. They can help cardholders manage their cash flow more efficiently, while taking advantage of features such as rewards, travel extras and business tools.
Introductory offers are designed to entice new cardholders to apply. But, while they may work as a way for card providers to attract new business, they can be very beneficial for the cardholder as well. Of course, to make it work for you, you need to understand how they work, and who they work best for.
Introductory offers can be beneficial in the short term, but if you’re planning on keeping the card past the introductory period, make sure it works well for you in the long term as well.
What is it? With a balance transfer offer, you can transfer a balance from another credit card, store card, or even a personal loan, to pay a much lower rate of interest over an introductory period.
Why choose this offer? A balance transfer offer could help you save big on interest as you work on paying down your balance. This could not only help you save money, it could help you get out of debt faster.
What should you be aware of? Try to choose an offer that will give you maximum interest savings, while giving you enough time to pay off your transferred balance. Work hard to pay it all off within the intro period, and be aware of what your balance will revert to if you don’t.
What is it? With a purchase offer, you will pay a lower rate of interest on purchases over an introductory period.
Why choose this offer? If you are thinking of making a large purchase, or you simply want to save on interest day-to-day, you could use a purchase offer to save big, and then pay it all off before the intro period ends.
What should you be aware of? Opt for an offer that provides the lowest introductory purchase rate over the longest period of time. Create a budget to avoid overspending, and be sure to pay off your spending within the intro period. Understand what the purchase rate reverts to.
What is it? A card with a bonus points offer provides a chunk of bonus points to new cardholders. To get your hands on these bonus points, you will usually have to spend a certain amount on the card within the first few months.
Why choose this offer? If want to boost your points balance, an offer such as this could be a great way to do that. With a big enough boost, you could take a trip, indulge in some retail therapy, or simply squirrel the points away for the future.
What should you be aware of? Understand the minimum spend requirements, and make sure you can afford to spend that amount on the card, to pay it all off before it starts accruing interest.
What is it? With this offer, you will pay no annual fee on a card that typically charges an annual fee. This could be for the life of the card, or more likely, for the first year.
Why choose this offer? A no annual fee offer can provide a fantastic way to trial a card while you paying nothing in annual fees. If the card earns rewards or offers fancy extras, this offer essentially allows you to benefit from these features for free (as long as you avoid interest and all other fees).
What should you be aware of? Check what the card’s standard annual fee is, and make sure you can afford to pay it after the intro period ends. Alternatively, you could cancel the card before the first annual fee is charged if you decide the card is not right for you.
Another way card providers entice new cardholders is with extras. A card that offers lots of lovely extras can be incredibly appealing – but is it the right choice for you? When weighing up card options, look at the extras in detail, taking into account the additional cost you will pay in annual fees, and whether the extras will actually offer value to you, or if they just look nice.
Insurance cover is a popular extra on credit cards, especially premium options such as platinum cards and black cards. Cover may include travel insurance and retail cover, such as extended warranty, price protection and purchase protection. The level of cover will usually depend on the quality of the card – and its annual fee. While it certainly can be beneficial, cover can come with eligibility requirements, limits and exclusions, so read the PDS before you apply.
Premium cards – especially those that earn frequent flyer points – can offer access to airport lounges when travelling. This could provide single-entry passes or annual membership with unlimited access, depending on the prestige of the card.
Visa, Mastercard and American Express all provide extras to cardholders. These can range from basic to the extraordinary, depending on the type of card. Higher end cards usually offer more extravagant extras, which may include access to a personal concierge, airport limo services, hotel stays and airport lounge access.
Most cards offer a certain number of interest free days on purchases to cardholders who clear their balance each month. This can allow smart cardholders to keep interest costs at zero. Be aware these interest free periods do not apply when you have a balance transfer on your account.
While most cards charge a fee for transactions made in a foreign currency, some do not. These can work well for cardholders who travel overseas frequently, and those who shop online at international retailers.
Rewards can seem terrible appealing when you’re comparing credit cards. Who wouldn’t want free stuff just for using your card, after all? Unfortunately, it’s not as simple as that. While rewards cards certainly can be of benefit to the right cardholder, they don’t work for everyone. Here’s how they work.
Most rewards card charge an annual fee. Cards with a higher earn rate typically have a higher annual fee. To make your rewards card work for you, you need to make sure that you pay out less in annual fees than you get back in rewards value.
When comparing rewards cards, it’s a good idea to start by estimating your annual spend, to then work out what that equates to in rewards value. This should tell you whether the annual fee is worth paying or not. Of course, you will also have to take into account the value of any features provided as well.
Rewards cards typically work best for bigger spenders. If you can channel a larger spend through your card, you will get more rewards in return – subject to any points caps. However, you will need to pay off your entire balance each month, or you will reduce the value of the rewards you earn.
What type of rewards could you enjoy? This is another important factor. You need to choose rewards that you actually want to earn. This could be frequent flyer rewards with a carrier such as Qantas or Virgin, it could be retail rewards that you can redeem for merchandise and gift cards, or it could be cashback rewards that you can use in pretty much any way you want.
Now you know what types of cards are out there, you need to compare all your options to find the right card for you. So, how do you do this without losing your mind? Mate, of course. At Mate, we know how stressful and time-consuming searching for a credit card can be. Which is why we take the pain out of the process, to make it as stress-free as possible.
First, you need to work out what kind of cardholder you are. From there you can narrow your options to the type of card that best suits your spending style.
You use your card a lot and tend to rack up quite a balance, but don’t generally manage to pay it off. Instead of paying heaps in interest on that carried over balance, you could opt for a low rate credit card, helping you to keep interest costs down, while you work on paying off what you owe. A balance transfer card with a low standard purchase rate may be worth looking into if you currently have a balance you want to pay off.
You don’t use your card very often, but like to have it there should you need it. This could mean pulling out your card for emergencies, or to cover larger purchases that you want to pay off over time. If you only keep a card for occasional use or emergencies, a no annual fee card could work well, as you won’t have to pay to keep it in your wallet when you’re not using it. If you have a large purchase in mind, a card with 0% purchase offer could save you on interest as you pay it off over a longer period.
You use your card pretty regularly, but always pay off your balance at the end of the month. If you use your card for a particular type of purchase, say supermarket shopping, you could consider a rewards card that rewards the spending you do most. Keep in mind the cost of the card’s annual fee, and make sure the rewards you earn are worthwhile.
You spend big on your card and always pay it off each month to avoid interest accruing. The right rewards card could be a great choice for you, allowing you to earn something back on all that spending. As always, be aware of how much you are paying out in annual fees to make sure your card is actually rewarding you. You may also consider a premium card with additional extras, especially if you are a frequent traveller and like travelling in style.
Once you know what to compare, choosing a credit card becomes much, much easier. When using Mate to compare your credit card options, keep the following factors in mind.
If you carry a balance, the amount a card charges in interest is incredibly important. Choosing a card with a low rate can help you keep interest costs down, making your card more manageable overall. If you always pay off your balance, the interest rate on your card doesn’t matter too much, so you don’t really need to let this affect your decision.
How much you pay in annual fees on your card will determine how much value it can offer. Opting for a card with no annual fee or a low annual fee could help you keep costs down, and can work well for those looking for a basic card. If you choose a higher end card offering rewards and extras, just make sure you get more from those features than you pay out in annual fees.
Some cards only offer the basics, while other cards go all out. Try not to get swayed by fancy features, especially if you’re trying to save. However, if you are interested in features, read the small print to make sure you understand them, and can make the most of them. This is especially true for rewards programs.
Some cards will suit your needs, while others will not. There’s no point trying to make a card fit your needs – even if it is amazingly appealing. Instead, work out what is most important to you as a cardholder, and choose a card that best meets those requirements.
While we’ve not talked much about eligibility yet, it is an extremely important factor. You could find the perfect credit card for you, but if you’re not eligible, you’re not going to get approved. A card’s eligibility requirements will typically require you to be 18 or over, and a citizen or permanent resident of Australia. You may also have to earn a certain income, and have a good credit history.
Time to apply? While card providers may vary in their application requirements, here are some things to tick off your checklist before you hit apply.
Ensure you have all required information to hand. This could include:
(name, date of birth, ID, marital and residency statuses, address, contact details and referee details),
(such as your monthly income and other income sources, monthly expenses, assets and liabilities),
(detailing your current employment, including your employer address, manager’s name and contact details for verification purposes),
Any info regarding your card preferences (such as your desired credit limit and any balance transfers)
Ensure you meet all eligibility requirements for the card. These should be detailed clearly, but if you are unsure, contact the card provider before applying.
Check your credit rating before you apply. You can do this for free at any of Australia’s credit reporting bureaus, such as Experian and Equifax.
Even if you have a couple of credit cards you are interested in, only apply for one card at a time. If you apply for multiple cards at once, it can make you seem like more of a risk to card providers, who may reject your application.
Now you’ve applied and been approved. Congratulations, you are now the proud owner of a shiny new credit card. So, how do you keep that card working in your best interests?
In case you skipped over the last two sections just to get to this one, we’ll say it again: you need to make sure you understand how your card works if you not only want to get the most out of it, but also avoid paying out too much. This means reading the small print. Tedious, yes, but ultimately worth it. Pay particular attention to how your rewards work, and extras such as insurance.
Having all that credit available can be unbelievably tempting. But before you spend, spend, spend, stop and think. Unless you can afford to pay it all back by the end of the month, it’s only going to get you in trouble. It can help to create a budget to work out how much you can afford to spend each month. And if you’re really having trouble with temptation, consider lowering your credit limit.
While cash advances are offered as a feature on most credit cards, they are best avoided. Not only will you have to pay a fee each time you use this feature, you will also pay a (typically) higher rate of interest on the transaction from the day you make it. It’s best to pretend like cash advances don’t exist and your bank balance will be better off for it.
Sure, it can be tempting to only pay the minimum each month, but it’s not going to leave you in a good position financially. While we know it’s not always possible to pay off your balance each month, you should try to do so whenever possible. This allows you to keep interest costs down –while taking advantage of interest free days on your purchases – while also helping you to keep a handle on your debt.
If you have a rewards card, you may want to think about ways you can use your card more. After all, the more you spend on your card, the more rewards you will earn. This could mean paying your rent or your bills with your card, as well as smaller transactions, such as lunches out, your gym membership, and your weekly trashy magazine fix. As long as you pay off all your spending before it starts accruing interest, you could really see the benefit in the extra rewards you earn.
Whether you chose the wrong card to begin with, or your needs have changed over time, you may benefit from finding a new card. Think about whether your card meets your needs, and if it doesn’t, use Mate to find one that does.
Life can get expensive. While credit cards can be bloody marvellous at helping us out in the short term, they are not long term solutions to debt. If you think you might be having trouble with your credit cards, consider speaking to someone who could help. This could allow you to find help with budgeting, to sort out your finances so they work better for you.
Check out the extensive range of credit cards here on Mate, and put all your new-found knowledge to good use when comparing them. You’ll have the perfect piece of plastic – for you – in your hands in no time.