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.

 

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.

Popular Credit Cards to Choose From

Credit Card	Card Details	Interest Rate (p.a.)	Cash Advance Rate (p.a.)	Balance Transfer Rate (p.a.)	Annual fee	Interest free days (up to)
HSBC Credit Card	The HSBC Credit Card offers no annual fee for life, and a great balance transfer option making it one of the best offers in the market currently	16.99%	20.75%	0% for 6 months	$0	55
Citibank Clear Platinum Visa Card	For a Platinum credit card, the Citibank Clear Platinum VISA has a very low annual fee, and a very competitive purchase rate.	11.49%	21.24%	0% for 7 months	$99	55
Bankwest Lite MasterCard	The Bankwest Lite MasterCard was awarded the Cheapest Credit Card and the Cheapest Balance Transfer for 2010. It is currently the lowest purchase rate MasterCard credit card in Australia	10.75%	21.74%	1.99% for 9 months	$59	55
St George Vertigo	The St.George Vertigo MasterCard has consistently been a great value credit card offer for Australian consumers, and one of the most popular cards.	12.49%	21.24%	2.99% for 6 months	$55	55
Aussie MasterCard	The Aussie MasterCard gives credit card users, the same sort of value and choice that Aussie brought to the home loan market.	2.99% for 6 months (reverts to 12.99%)	19.79%	2.99% for 6 months	$49	55
Westpac Low Rate Card	The Westpac Low Rate is available in either a VISA or MasterCard. If you are after a no-frills, low interest credit card with the option to do a balance transfer, you can definitely consider the Westpac Low Rate as a choice.	13.24%	21.24%	1.99% for 9 months	$45	55

View more of the popular credit cards on Credit Card Finder.

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.

• Determine how you spend your money and what sort of spender you are
• Research all of the credit cards that offer features to match your type of spending
• Check out all of the different interest rates and fees
• Compare different cards to be certain you pick a credit card that meets your needs
• Thoroughly read the policy terms and conditions

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

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.

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Editor's Choice: Our Top Credit Cards




Credit Card	Card Details	Interest Rate (p.a.)	Cash Advance Rate (p.a.)	Balance Transfer Rate (p.a.)	Annual fee	Interest free days (up to)
HSBC Credit Card	Editor's Choice: 0% for 6 months Balance Transfer & No Annual Fee Featuring a $0 annual fee for life, and 0% p.a. balance transfer for 6 months, the HSBC Credit Card was voted the Best Transactor Credit Card for 2010.	16.99%	20.75%	0% for 6 months	$0	55
Suncorp Clear Options Standard Visa Card	A great 12 month balance transfer offer, combined with a low annual fee and a good interest rate on purchases.	12.24%	17.99%	1.9% for 12 months	$39	0