Choosing a Credit Card

When it comes to choosing a credit card, the choice isn’t always easy!

With so many credit card offers from Australian banks to choose from, it really does help to do some research first to ensure you can understand them and more importantly compare them to find a credit card offer that suits your spending habits and financial situation.

Table of Contents: Guide to choosing a credit card

• Are credit cards the best way to get finance?
• Credit options to compare when choosing a credit card
• Picking your credit card
• How do you know what sort of spender you are or how to select a credit card that’s right for you?
• Select a credit card that matches your type of spending
• How to choose a credit card provider
• Comparing interest rates and fees

There is no denying that credit cards have their uses. In fact many people wont even bother to carry any cash when they have a credit card in their wallet. Herein lies the danger, it is too easy to pay for everything with your credit card. It is important for you to learn the important things you need to know when choosing a credit card and completing your online credit card application.

Credit Cards to Choose From

Are credit cards the best way to get finance?

There is no denying that credit cards have their uses. In fact many people don’t even bother to carry any cash when they have a credit card in their wallet. Herein lies the danger, it is too easy to pay for everything with your credit card, be it household shopping, Internet purchases or booking a holiday.

But the only way to manage this mode of spending is to learn to discipline yourself when using your credit card and knowing how to select a credit card; otherwise the debt collector can soon be knocking at your door. You have to be careful in choosing a credit card.

But that’s not to say credit cards are a bad option, it comes down to knowing what finance options are available to you, and which will best suit your needs and spending habits and how to choose a credit card. Sometimes a personal loan might be more appropriate for your purpose or a store account that lets you purchase goods with no interest. If you are booking travel online or shopping on the Internet, using a Visa or MasterCard debit card is an option to save you any interest charges.

Debit cards have become more popular in Australia in the last few years, particularly for those who haven’t been able to afford a credit card. The advantage of debit cards is that they provide the convenience of credit cards, but you are using your own money as opposed to borrowing on credit. However, there are some advantages to credit cards if you know how to pick a credit card that works for you.

Credit options to compare when choosing a credit card

Personal loans vs. credit cards

Personal loans usually have lower interest rates than credit cards. When you borrow money, the credit provider will charge you interest on that loan until the debt is totally repaid. Because a personal loan generally has fixed term payments and lower interest, the debt tends to reduce faster than that of a credit card.

Credit cards don’t have a fixed time frame for payment, i.e. you can make minimum repayments per month, and still keep adding credit back on your card until your limit is reached. This is not a good way to go for reducing your debt, which is yet another reason you need to be careful in picking a credit card.

Interest free shopping

It’s not at all unusual, particularly in Australia to see major electrical and furniture retailers advertising “Nothing to pay for 6 months or until 2012″. These offers are usually for big ticket items such as washing machines, entertainment packages or plasma TV’s etc. Buying an item interest free lets you take home your purchase, and pay it off during the given period, or before the interest free period expires.

If you opt for the latter, it might be nice to have your item immediately but how will you feel two years later, paying for something that is already two years old? This is just something to consider when you are thinking about how to choose a credit card.

Interest free purchases have two types of payment methods:

The item can be paid for by monthly instalments, with a minimum payment required each month; or no payment is necessary during the interest free period, but the amount must be paid in full before the term expires. If you make the monthly payments or pay by the agreed time, no interest is charged. However, read your contract before you sign it as other fees could be applied, for example:

• Monthly account keeping fees
• Establishment fees
• Fees for payment handling

If the item isn’t paid by the due date, you will have interest charged on the balance outstanding, and be careful, this can be high.

Quite often when you sign up for an interest free item in a store you will be offered a store credit card. This can be dangerous if you get carried away, making other purchases or withdrawing cash, since these cards do not carry interest free terms and the interest rates can be very high, as much as 28%. Which is why it’s important to know how to select a credit card that suits you.

Picking your credit card

After considering all your options and deciding that you are going to choose a credit card for your finances, there are a few steps you can take to ensure you select a credit card that is right for you. Knowing how to pick a credit card, especially the right one is critical. Credit card selection depend in following aspects:

The Interest Rates

First and foremost, consider the interest rate. Often times, the credit card says that they have a 0% APR. That means that they have no interest. That’s fantastic…Except for one small detail: that’s probably just the introductory rate. Ensure that you read the terms and conditions (the fine print). This rate is only for a short period of time before it increases to the prime rate or slightly above that rate.If you do find a credit card with 0% APR, try and see if you can’t get one that has a 0% transfer rate so you can get the balance from a high interest credit card over to this no-interest credit card. That can be saving grace for your pocket and debt. But remember, The 0% APR on balance transfer would just be an introductory rate. Pay back the balance because the true interest will suddenly appear.

Rewards Cards

If you are like most people and want to try and get something back for your use of a credit card, look into getting a rewards card. These are cards that the companies provide that earn you different rewards. Some of these rewards could be anything from miles on an airplane to gift cards to stays in hotels to anything else really. The credit card company is the one that decides really just what they want to offer. They offer points on every dollar you spend and that really is a great thing.

Annual Fees

However, keep your eye on the annual fee. If you’re not using the card all that much then paying whatever annual fee they have might actually cost you more than you’re receiving in rewards. A rewards card is good for the person that is going to use it a lot and pay back the balance before the end of the month. That’s the best way to reap the benefits of a rewards card. Finally, check the fine print on when the rewards becomes invalid. They aren’t yours forever. You have to use them in a certain amount of time. Be on the lookout for cards which offer ‘no point expiry’, as this is an invaluable feature which will drastically increase the value of your rewards card.

What does it come down to?

In the end, you want to pick the kind of card that is going to suit you the most. Bad at paying back your balance? Get a low interest credit card. But remember that the 0% APR is not forever. Good at paying back your balance and want to earn some rewards in the process? Go with a slightly higher interest card, but with some nice rewards. It’s all up to you, but pick the one which you believe will fit your personal spending habits and financial lifestyle.

How do you know what sort of spender you are or how to select a credit card that’s right for you?

Generally there are two categories of spenders, one of which is the debtor who uses their credit card frequently, without paying off the balance. Debtors leave themselves open to having to pay interest on purchases and acquire an ever increasing debt balance. The second category is transactors, who also use their cards often, but pay the balance in full each month to avoid any interest charges.

Select a credit card that matches your type of spending

Because debtors and transactors spend differently, they need to look at how to pick a credit card and credit card offers from a different perspective. The person who pays their card each month is generally disciplined, and doesn’t spend more than they can afford. Consequently a credit card with low fees and reasonably good interest free period would be appropriate for this category of spender. This is why you need to know how to pick a credit card to get the best benefit for you.

Providing the balance is always paid before the due date, interest won’t be applied. However, it can be a costly mistake to miscalculate due dates or overlook a payment, not only will you get charged interest, but you stand the risk of losing your interest free privileges and being charged from the date of making the purchase.

Another point to keep in mind is that interest free days do not apply to cash advances. When you use your credit card to withdraw cash from an ATM or a bank, that is deemed a cash withdrawal.

This next point isn’t always known but, when you make a BPAY payment with your credit card, this could also be construed as a cash advance by some merchants, and you will be charged accordingly.

How to go about selecting a credit card if I don’t pay my balance off each month?

If you carry your balances over each month, select a credit card with a low yearly % rate. This is important, as you will continually be having interest charged on the outstanding, ongoing debt.
There is no benefit to you in picking a credit card with an interest free period, as you won’t be able to take any advantage of that. When you don’t pay your balance in full you are charged interest from the date of the purchase, until such time as the balance is cleared. The best type of card for you would be a low interest, no frills credit card.

What are the benefits of rewards programs?

Rewards programs are applicable to cards where you get offered something in the form of a “reward” for using your card. These are generally intended for regular card users, and the benefits are varied. The principle is that the more you use your card the more rewards you get. The person who benefits most from these types of card is the one who pays their balance in full each month. Rewards program cards tend to have high interest rates and fees.

When you don’t pay your balance in full every month, the benefits are outweighed by annual fees and high interest, which can exceed the perceived benefit of the reward.
If having a rewards card appeals to you, make sure you understand what is involved when you pick a credit card.

• Does it cost more to join a rewards program?
• What reward is being offered?
• How much has to be spent to get the reward?
• Do I normally spend that amount?
• Do rewards points have an expiry period?

It’s a good idea to find out how many points you earn per $1, plus how many you need to accumulate before you can use them to obtain goods or services. Also find out whether you have to pay loyalty points as an additional fee when you want to exchange them for flights or other rewards.

How to choose a credit card provider

The Australian market offers a wide range of credit cards and lenders. Although it is important to look at the interest rates and deals offered, it is also important to know how to select your credit card provider. The factors you should take into account when you choose your credit card provider are:

Availability

If you are a frequent card user, it is possible that you will contact your provider on a regular basis, so make sure they are easy to reach. Is there a local branch you can visit if you have a dispute, want to make payments, or pick up a new card? Do they have good online facilities for you to access your account and manage transactions?

ATMs

Are there plenty of available ATMs for you to use? Particularly since using an alternate ATM (not associated with your bank) incurs a charge of $2.00 for each use. Are the ATMs convenient to your home or workplace?

Customer Service

You may choose one of the major Australian providers being the ANZ, the Commonwealth Bank, NAB or Westpac, for the extra sense of security. However, being part of a large corporation as such can mean a loss in the personalised customer service you might get from a smaller financial institution. You need to decide, which is most important – are you prepared to sacrifice a lower interest rate for personalised service?

Fees and charges

When selecting your credit provider don’t just look at the interest rates, check out what other charges and fees are levied on your card. After looking at the fee structure you need to be certain you are getting value for your money and that the fees are not excessive.

Rewards

Does the credit provider offer a good rewards program? If you pay your balance in full each month, this type of rewards card may be beneficial for you.

Extra card benefits

Credit card lenders can offer a number of extra benefits on their cards including:

• Discounted goods and services
• Insurances and payment protection

There are so many providers to choose from and all are touting for your business so it is worth taking your time to examine what they have on offer. These days, rather than trailing from bank to bank, people prefer to do their research online. You might feel some loyalty to the bank where you already have an account, but it really is in your own interests to shop around.

Comparing interest rates and fees

When choosing a credit card it’s very important to make a comparison between the different interest rates and any fees that will be charged. This is where you need to take into account your specific spending habits.

Understand the interest rate variations

Unfortunately it can get a bit complicated trying to navigate through the various interest rates and exactly how they are applied. Different rates can apply to different situations, dependent on how your card is used, and the frequency with which payments are made. The following examples would all have different rates applied.

• Making a purchase of goods or services
• Making a cash withdrawal
• Transferring the balance of your credit card debt to another card

Balance transfers are often made as introductory offers to gain new customers. They are not offered to existing customers. The offer usually takes the form of being able to transfer the balance of your existing credit card to a new account, with a zero or low balance for a predetermined period. Once that period expires, you revert back to paying the normal rate for that particular type of account.

However, there are a couple of things to take into account, the zero or low interest only applies to the balance you are transferring, and any subsequent purchases or cash withdrawals will attract the normal interest rate. Also check whether there are any transfer or administration fees, these could outweigh the benefits you are gaining with the low interest rates.

Credit card fees

There are a range of fees and charges that can be applied to credit cards. So it is suggested when selecting a credit card, you read the policy terms carefully, so you know exactly what will be applied, and how they are applied. The most common fees are:

• Annual fees
• Late payment fees
• Balance transfer fees
• Cash withdrawal fees
• Exceeding credit limit fees

Terms and conditions

What information should I know when picking a credit card?

Credit lenders are required by law in Australia, to provide you with all the details of your credit contract before you enter into the agreement and choose a credit card.

By using the credit card you are considered to have accepted the contract with its subsequent terms and conditions. Prior to entering the contract you must be advised of the following:

• Maximum limit on the credit card
• The yearly interest rate and how each rate is applied.
• How the interest is calculated
• Minimum monthly payment required
• All fees and charges, and when they are payable
• If the interest, fees or charges are variable, how will the credit provider notify you of changes?
• Should you breach the terms of the contract, you may be liable for recovery costs
• Will a commission be paid to or by the credit lender for obtaining your business?
• Details of any optional insurance provided such loan protection, that you have agreed to

Credit Card Needs Checklist

A low interest rate credit card is best for anyone who plans to finance their purchases over a few months because their interest payments will be kept to a minimum. An introductory offer that lowers the purchase interest rate for the first few months would be even better, as long as the revert-to rate is also one of the lowest.

A balance transfer credit card would suit your credit card needs if you have a debt on a card from another provider and you want to reduce your interest charges for a set period by switching to a new provider with an introductory offer.

A zero annual fee credit card would be your best bet if you only intend to use your card for occasional spending that you will clear in full at the end of every month. In this case, the usually higher interest rates on these cards will not be an issue.

These card types are also ideally suited for people who happen to pay off their cards in full each month as it effectively gives them a no-cost credit card.

A rewards credit card is great for anyone who naturally puts a lot of spending through their credit card and who therefore feels they might as well take advantage of it and build up points to redeem for rewards – perhaps flights, cashback, merchandise or gift cards.

With credit card comparison websites full of all the pertinent information, there is really no excuse for ending up with the wrong credit card. Provided you properly analyse you credit card needs prior to visiting such a site, you should do just fine.

Things you should know about selecting a credit card

The law also states that a credit provider is required to supply you with information regarding your rights and obligations under the terms of the contract. Usually you will be provided with a booklet containing the relevant information. This should contain information pertinent to:

• The contract
• Ending the contract
• Contract changes
• Insurance
• Advice regarding payment difficulty or, what to do, if you consider the contract terms unreasonable

It is important to read and make sure you understand the information. If you have questions, ask the credit provider to explain the answers. If you are still concerned obtain legal advice from a qualified financial counsellor or ring the Department of Consumer and Employment Protection on 1300 304 054

What is a credit limit?

The maximum amount that can be charged to your credit card is known as your credit limit. This amount is determined by your credit card provider, and is based on information you have supplied in your application.

It can be very tempting when you first get your new credit card to go on a wild shopping spree, but you need to exert some restraint else you will find it costly at a later date. Particularly if you have been given a high limit, and you feel you might be tempted to spend it, you can ask your provider to reduce it, and then apply to have it increased at a later date if necessary.

Don’t ever forget credit lenders are all about making money from your business. Only take on board an amount you know you can repay.

Minimum payments

When you only make minimum repayments each month, rather than paying the balance in full, you will be subject to interest being applied to your account. So realistically, it will take longer to pay off your credit card by only making small payments. Not many people do the math to work out exactly what they do pay back with the interest included. Choose a credit card carefully with the right interest rate for you.

As an example: If the balance on your credit card each month was about $2,800, and you made the minimum payment of 2% of the debt, it could take up to 50 years to pay the total debt on your credit card.

To take this to the next scenario, with a yearly interest rate of 18%, you would have paid at least $25,000 to your credit card company in interest, over the years. Isn’t that a scary thought?

Increases in credit limits

When you have a credit card for a while and make regular payments, quite often your provider will offer you periodic credit limit increases. Consider these offers cautiously – unless you are sure that you can make extra repayments on an increased loan, don’t accept the increase. Keep in mind it will take longer to pay your debt, and you will be paying more interest.

Regular repayments

Do you wait until the due date on your credit card statement, before making your monthly repayment? If so, you should remember that interest is charged daily, making small regular payments whenever you can will reduce your debt a lot faster, and keep that interest rate down. Every time you have a bit of spare cash it’s a good idea to get into the habit of putting it on your credit card, rather than waiting until the due date.

One credit card is enough

When you have multiple credit cards, you have multiple fees and charges, and they all add up. It’s too tempting to keep spending, and your debt escalates. Then each month instead of worry about paying one card you are trying to juggle several repayments, and quite often robbing Peter to pay Paul.

If your cards have got out of hand and you are struggling to keep on top of your debt, have a look at other options for bringing them back under control. Consider taking out a consolidation loan or doing a balance transfer to one card with a low interest rate.

Pick the best credit card from the selection of categories below

Cards with no annual fee

A lot of cards offered in Australia do not attract an annual fee. These type of cards are especially useful for people that spend a lot on their cards but always pay off their card balances in full each month. If you are shopping for a no annual fee card always look for one that has a competitive interest rate.

$0 Annual Fee Credit Card Comparison

Cashback and rewards cards

Depending on the card, you will be paid back for your purchases in the form of cash or rewards at a certain predetermined time. You should take a look at the different offers available and think about whether you would prefer getting money back or whether you could use the points for future purchases.

There is competition amongst card issuers and finding the best credit card for rewards will take a bit of research. Look for offers that sweeten the deal with double or triple rewards. These cards are great if you spend a lot on your credit card and tend to pay off your balances on time. You will usually need a good credit rating for approval.

Cash Back Credit Card Comparison

			Purchase Rate p.a.	Balance Transfer Rate p.a.	Annual Fee	Reward Points per Dollar	Required Spend for $100 Reward
	ANZ Rewards Credit Card	Earn rewards points on your purchases, redeemable for a huge selection of rewards including shopping vouchers, gift cards, travel and cashback.	19.39%	0% for 9 months	$89	AMEX:2 VISA:1.5	$9,990
	Commonwealth Bank Awards Credit Card	Earn up to 1.50 Awards points for every $1 spent	0% for 5 months (reverts to 20.24% )	5.99% for 5 months	$89	AMEX:1.5 MCARD :1	$11,600
	ANZ Rewards Platinum Credit Card	Earn an increased rate of reward points over the standard card plus platinum benefits. Cashback an option when redeeming reward points.	19.39%	0% for 9 months	$149	AMEX:3 VISA:1.5	$20,000

Frequent flyer cards

If you are able to pay off your credit card every month, then you may want to take a look at the different frequent flyer cards available. These cards are great for people that like to travel and would like a little bit of extra help paying for their holidays. When you make purchases on your credit card you can get rewards points that you can use towards car hire, hotels or booking flights.

They can be especially valuable if you use your cards to make a lot of purchases every month. In this way, you will see your points add up faster so that you can save as much money possible on a future holiday. If you are planning on getting a card such as this, you should check out which airline carrier that card is partnered with so that you can choose the best credit card for your own situation.

Frequent Flyer Credit Card Comparison

Balance transfer and low interest credit cards

If you have a large balance on a current credit card and you are struggling to pay it off, then the best credit card for you may be a balance transfer card. When you sign up for one of these cards you will get a very low, or even a 0% rate of interest, for the first 6 to 12 months.

Before signing up for such a card you should consider whether you will really be able to pay off your balance within the six or 12 month time period. When the promotional time has expired, you will be expected to pay the standard interest rate, which at times can be quite high.

Low Interest and Balance Transfer Credit Card Comparison

Credit cards for business

If you are running a business on your own, you should look at the advantages there are to having a business credit card. If you have one, it will make your business look more legitimate and it will also make paying taxes and bookkeeping much more simplified. You can also get extra cards for your staff to use for purchases.

Business Credit Card Comparison

Gold and platinum credit cards

High income earners with a good credit rating might qualify for one of these cards. You will be rewarded with many benefits and exceptional service such as purchase cover, free travel insurance and contents insurance. You may also be entitled to extended warranty coverage, airport lounge access and concierge service if you get a Platinum card.

Gold and Platinum Credit Card Comparison

			Purchase Rate p.a.	Balance Transfer Rate p.a.	Annual Fee	Reward Points per Dollar	Required Spend for $100 Reward
	American Express Platinum Card	Receive 80,000 Membership Rewards Bonus Points when you spend $500 on your card.	%		$900	1.5	$9,000
	American Express David Jones	Earn 15,000 Membership Rewards points or 11,250 Qantas Frequent Flyer points when you spend outside of store 3 times in the first month.	20.74%		$99	Partners: Up to 3	$4,500
	Citibank Clear Platinum Card	A low interest rate offer on balance transfers and purchases. Plus half of annual fee for the first year.	0% for 6 months (reverts to 11.99% )	0% for 6 months	$49 annual fee for the first year ($99 thereafter)	Visa:0
	ANZ Rewards Platinum Credit Card	Enjoy accelerated points earning and great Platinum features with ANZ Rewards Platinum.	19.39%	0% for 9 months	$149	AMEX:3 VISA:1.5	$20,000
	ANZ Platinum Credit Card	Overseas Travel and Medical Insurance, Domestic Interstate Flight Inconvenience Insurance, Extended Warranty and a best price guarantee. Plus enjoy special interest rates on Purchases over $500.	19.39%	0% for 9 months	$0 annual fee for the first year ($87 thereafter)

Credit cards for bad credit

Some credit card providers will offer a card to people that have a bad credit rating, but these cards usually come with a very high interest rate. It is advisable to start with a card that only has a small spending limit so that you can pay off your balance monthly without incurring more debt.

Student cards

University students can apply for a special student credit card that offers a low interest rate to help them prevent debt. These low rate cards can allow a student to pay his or her way through their education without fear of ending up with a hefty debt before they hit 20. Naturally it takes self-control and financial sense to handle any card correctly, not just those for students.

The type of credit cards discussed above should help you decide which one is the best credit card for you. There are a lot of cards to choose from, but once you have decided on which one serves your needs best, you will be able to enjoy all of the benefits the card has to offer.

Student Credit Card Comparison