What should I look for in a credit card?

There are so many credit cards on offer in Australia that it can make your head spin!

If you’re looking for a card, you need to find the one that’s best for you and your lifestyle, so here’s a guide to help you through this dense forest.

How to select the right credit card

Here’s your handy guide on how to compare credit cards.

Look at the interest rates

You need to pay a lot of attention to the interest rate. You could be swayed by that attractive zero per cent purchase rate but remember that that’s just an introductory rate.

You need to look at the terms and conditions to find out how long this honeymoon period lasts and what the interest rate will revert to when it’s over.

The rewards scheme

One big benefit of a credit card is the reward scheme, so you can earn as you spend. Not all cards offer such an incentive, but the ones that do can mean airmiles, discounts on hotels or gift cards.

Look for schemes that suit your lifestyle. If you like buying your dad a new gadget every Christmas, then opt for a card that lets you save up points for coffee roasters or gadgets.

Be on the lookout for reward points with expiry dates, too, because you could find your hard-earned points vaporise.

The annual fees

Whatever the interest rates and incentives, you also need to look at the annual fees because these can tip the balance from ok to unaffordable when it comes to adding up your total costs for the year. If your rewards scheme earnings are likely to outweigh your fees, then go for it. If, on the other hand, you’re likely to only use your card a few times a year, then it’s not worth looking at cards with either rewards schemes or fees.

In the end…

You need to tailor your choice of card to your lifestyle and your spending habits and schedule. If you’re likely to be making one or two big purchases a year that you’ll probably pay off over the course of the next year then no-frills cards with low interest rates are the best credit cards for you.

If you’ll be making lots of purchases and then paying them off within the next month then a card with an interest free period and a good rewards scheme is best. This card might have a higher interest rate than the other, but if you mostly pay off your balance before interest hits, this doesn’t matter.

Looking at the provider

Another important thing to examine when you compare credit cards is how you’re treated and catered for by the provider.

The availability of the provider is important; can you call them 24/7 or just office hours Monday to Friday? Is there a physical branch you can call into for help and advice? What about the online services? Can you check your balance and open a dispute online?

You also need to check for ATMs, as if you use an ATM that’s not linked to the provider then you might get a transaction charge as well as a high interest rate. Where are the ATMs?

The customer service is something you need to examine, as it may be important for you to have a more personalised service. If you want personal, then a smaller provider might be better. If you’re more interested in 24/7 access and a sense of security, then one of the Big Four banks might be your best bet.

You may also see that some cards offer extra perks, like discounted insurance or reduced entry to various attractions. If this is important to you and most of the other factors check out ok, then you may have found your ideal card.

Looking more closely at the fees

Even if your card doesn’t have any annual fees, there may be penalty fees for late payments, withdrawing cash or for exceeding your credit limit, as well as balance transfer fees. You might be drawn in by low interest rates but then stung on occasions by fees for going over your limit, for example.

Your provider must tell you all about your card

Lenders are legally bound to give you all the details of your credit agreement before you agree to the contract.

This information includes your credit limit, your annual interest rate and the different rates for cash withdrawals, how interest is calculated and what your minimum payment will be. It’s also important for the provider to tell you what happens if you breach the terms of the agreement.

You should also be told how you’ll be informed of any changes to interest rates, fees or charges.

What about increases in credit limits

If you handle your credit card well, you’ll probably be offered an increase in your credit limit after a while. Think very carefully about accepting the increase – use a calculator to work out how much you’ll have to pay each month if you hit your limit. You also need to think about how long it’ll take if you only ever make minimum payments.

The key takeaway is this:

There is a credit card to suit you. You just need to shop around and find the one with the mix of fees and rates that matches your lifestyle.

The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. If you or someone you know is in financial stress, contact the National Debt Helpline on 1800 007 007.

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