Credit Cards Guide
To find one of the best credit cards for your spending habits it is essential to compare credit cards. Compare over 200 MasterCard, Visa and American Express products including low interest credit cards and balance transfers at RateCity, Australia’s leading credit card comparison site.
Starting your credit card comparison can seem like a daunting task but we can help you understand the key things you need to consider before making your decision. This guide covers such topics as rewards, interest free, balance transfer, prepaid and frequent flyer options. It’s important to pick the best card for your needs and level of spending, or you could find yourself paying more in annual fees and interest than you need to.
To make it simpler for you, these are the areas you need to consider when comparing and applying for a credit card.
What to consider when choosing a credit card
1. Spending Profiles
Like a set of keys, there is no one-size-fits-all credit card. What's important to one person won't be for the next so in order to hunt down your plastic companion you need to take a look at your spending habits, as this will shine a light on what's really important.
Credit cards are generally used as an additional financial source to purchase goods and services, however people use credit cards in many different ways. Some people struggle to pay off their card each month, using it as a short or long term loan, whereas others chase reward points and never pay interest, always paying their bill on time.
It’s handy to recognise these types of spending habits as it will play a vital part in choosing a credit card. Based on these habits there are four main spending profiles to help show you what type of card will best suit your patterns. By working out which profile you best match, you are well placed to save money on a great credit card deal.
The Habitual Spender
Struggling to pay your card off each month?
Interest, what’s that? Habitual spenders use their credit card like they do their debit card and are constantly incurring interest and paying off debt.
If you struggle to pay off your credit card each month, you may benefit from a low rate card with a very low or no annual fee. If you are truly habitual and already carry a solid credit card debt, then also consider a balance transfer or a personal loan.
The Impulse/Occasional Spender
Not using your card often?
Your credit card is not an accessory but rather a necessary financial tool. You may use it to order large purchases that you don’t have the money upfront for and pay it off over an extended period.
If you only use your card for emergencies and occasional spending, such as at sales time and holidays, and then use the following couple of months to pay off the balance, you should consider finding a low rate card with a very low or no annual fee. If you just need the ability to make purchases online and overseas, a debit card may also suit.
Be aware, most low interest credit cards offer a lower rate for the introductory period so make sure you commit to paying off your entire debt during this period because afterwards the interest rates will spike, making it much harder for you to pay it off.
The Everyday Spender
Using for essentials and always paying off?
You use your card almost every day to do your grocery shopping, buy purchases online or pay your bills, but are tedious when it comes to paying off your credit card balance on time each month. Your monthly spend may come in at around $2000 per month.
If you use your card for regular purchases and you pay off your balance each month, then you won’t be as concerned about interest rates as you will be about the card features and fees. You will need to find a card that provides a rewards programs you're interested in, such as cash back or frequent flyer points.
Keep in mind rewards cards often come with a higher annual fee, so make sure you choose one you will get the most out of, at the lowest cost.
The Big Spender
Using for everything and always paying off?
As the name suggests, you are a big spender forking out over $5000 per month on your credit card. Perhaps you use your credit card to gain reward points, or for the convenience, but you are always conscientious about paying off your credit card debt in full each month.
If you’re a high income earner and big spender who always pays off your balance, you might be in the market for a card that provides features and perks that you use frequently. These may include free travel insurance, concierge services and rewards programs. Look for a rewards card that you will get the most out of.
Selecting the right credit card for your lifestyle is extremely important. Find a card that fits your spending needs, and don't select a credit card with a bunch of added extras unless you truly need them. You may end up paying a high annual fee for services and features you don't require.
Now you’ve identified your spending profile you can start doing a credit card comparison on RateCity. You will notice that most cards listed are given a star rating out of five, with five stars representing outstanding value for money. This can help you decide on which financial institution and credit card offers great value for your needs.
Click here to watch the Credit Cards Usage video guide - along with the full credit cards step by step videos.
2. Interest rate
Once you have worked out what sort of spender you are, or what your spending personality is, you can choose which type of interest rate card is going to suit your needs. Below are some types of cards available:
Low Rate Credit Cards
Low rate credit cards have a low interest rate which is usually accompanied by an annual fee. They are the "no frills" cards on the market because they are on limited features and services that other types of cards offer and typically don’t have any rewards programs attached. The main benefit of these cards is certainly the lower interest rate compared to standard cards.
If you don’t pay off your monthly credit card balance in full each month then this may be a great card for you. As you will be incurring interest each month your main objective is to keep interest rates to a minimum so you pay less in interest charges.
While rewards are enticing, if you often carry credit card debt and can’t pay off your full balance each month you will do better financially to find a low rate card rather than reward cards with premium features. Another option if you can’t pay off your balance is to look at personal loans which often have a lower interest rate than credit cards. Low rate cards interest rates are often 5-7% lower than standard credit card rates, which can add up to thousands of dollars in interest when paying down a credit card debt.
Standard Rate Credit Cards
If you are the conscientious type who always pays off their credit card balance each month, then you get a big thumbs up and don’t need to be concerned with interest rates as much. You will find more benefit in credit cards with low or no annual fees and perhaps a rewards program.
Low or no annual fee credit cards may offer a small annual fee or none at all for the life of the card or for a certain amount of time. Credit cards generally have trade-offs, and the trade-off of getting a card with no annual fee is generally a higher interest rate than low rate cards. Some low or no annual fee cards may have some sort of promotion whereby you have to spend a certain amount in order to waive the fee, however check with the credit card provider for full terms and conditions.
If you are committed to paying off your credit card debt in full each month than higher interest rates will be of little concern to you but the rewards and low annual fees will be.
Click here to watch the Credit Cards Interest video guide - along with the full credit cards step by step videos.
One of the benefits of having a credit card, besides the convenience of online purchases, is the rewards. If you want to get more out of your credit card, then perhaps you should consider a card that has a rewards program attached. This way you will be rewarded every time you use your credit card instead of just incurring nasty interest charges. There are a range of different types of rewards programs available including:
Frequent Flyer rewards
If you are a loyal airline traveller you could reap the benefits with a frequent flyers rewards card. Each time you pay for something using your credit card, you will receive Frequent Flyer reward points that can be redeemed towards Qantas, Virgin, or other flights anywhere in the world. This type of rewards program is great for those people who are frequent travellers or for businesses whose staff travel frequently. Most programs have a main partner such as Qantas Frequent Flyer or Virgin Velocity, however some cards allow you to convert your points to a range of global frequent flyer programs based on what you need for your next dream holiday.
Everyone loves money don’t they? Especially cash! Cashback rewards programs allow you to redeem your points for cash. There is usually a limit on how many points you need to collect before you can redeem for cash. The cash usually comes in the form of money credited back to your account, so it is essentially a delayed discount on your spending. Cash back is often not the most efficient way to claim rewards, requiring more of your precious rewards points to claim each dollar worth of cash back. However the trade-off is versatility, once the cash is back in your account, you are free to spend it as you please – something not offered by any other type of reward.
If travelling is your chocolate - your ultimate indulgence - then consider using your credit cards to earn yourself points to redeem for your next holiday. For each dollar you spend, you are allocated points to redeem to book a range of products and services depending on the provider such as tours, hotels and flights. Australians love to travel, so being rewarded with a travel voucher once a year could turn your dream holiday into a reality.
Get rewarded for shopping with your credit card with more shopping! For each dollar you spend you are allocated a certain amount of points to go shopping for a wide range of items such as appliances, sports gear, entertainment and more. While your choice can be limited by what is offered in your provider’s catalogue, merchandise rewards often have the best ‘bang for buck’, or point. The card providers can negotiate bulk discounts, so if they offer something you want, you may find this to be the most efficient use of your hard earned points.
Gift cards make great presents, even for yourself. Use your points to receive gift cards for a range of outlets such as Myers and David Jones. Gift cards could just be the happy medium between cash back and merchandise. While not quite as versatile as cold, hard (electronic) cash, you have significantly more to choose from than merchandise, you can even take advantage of the sales at some of the big stores. The ‘bang for point’ is reflected in this too. For every thousand points, you’ll generally get more back claiming gift cards than cash back, but not quite as much as merchandise.
Be aware that cards with reward programs often cost more in fees and interest so only choose a rewards card if you can pay off your balance in full each month and your annual spending will outweigh the cost of the rewards program membership.
It's nice to be rewarded so make sure you compare credit card rewards on RateCity to find out how you can cash in.
Click here to watch the Credit Cards Rewards video guide - along with the full credit cards step by step videos.
4. Credit card features
Credit card features differ from each lender so it’s a great idea to know which features you would want so you can tailor your search. Below are some main features of credit cards that may differ between each credit card provider.
Balance transfers benefit those who have one or more credit cards and are struggling to pay them off. Balance transfer cards usually offer a much lower interest rate for a set period of time and are only available if you transfer the balance from your card/s. It can help you pay off your credit card balance sooner.
But take note, after the introductory period has expired the interest rate will revert to a rate which is usually much higher. Also be aware that the purchase interest rate will not necessarily be the same as the balance transfer rate and try to restrain yourself from making any purchases until you pay off your debt. This option may not be suitable for the undisciplined spender.
Minimum repayment amount
This is the minimum amount as a percentage of the balance or a fixed amount that you must pay each month. This amount is usually around 2 or 3 percent of the balance, which means if you were to only pay the minimum amount each month it could take years to pay off. Try to pay off the entire balance each month but if you are unable to, try to pay more than the minimum amount to ensure that you reduce the balance, pay less in interest and pay your credit card off sooner.
A cash advance is when you withdraw money using your credit card. The interest rate for cash advances is usually higher than the purchase rate and there are usually no interest-free days so you are charged interest from the moment you withdraw the money. Try and avoid making cash advances to save on interest charges.
The interest-free period is the amount of time when you are not charged interest on purchases. Each card offers different interest-free periods but the common period is 40-55 days. To avoid paying interest, take advantage of this time and pay for your purchases before the interest-free period ends. Make sure you leave enough time for funds to transfer.
Having the best credit card rate is immaterial if you’re paying a hefty annual fee. Some lenders may waive annual fees, however you’ll need to spend big on the card to earn this windfall. While many of us rely on our credit cards we should not forget that cards actually cost money to own and use. Many credit cards have annual fees around the $100 mark, but some have annual fees as high as $700 per year. There are no annual fees cards available but make sure you check the interest rates and other features to make sure it’s worthwhile.
Click here to watch the Credit Cards Features video guide - along with the full credit cards step by step videos.
5. Card Brands
The three main credit card issuers are MasterCard, Visa and American Express. These three companies currently control the way that credit cards are run and are offered throughout the world.
The major difference between each one includes the availability of the issuer where you want to make a transaction and the fees.
Offers cards for personal use, business and merchants. These cards are available through a range of financial institutions which can be used around the world. They offer their members access to exclusive competitions and offers depending on the level of card.
American Express also offers their own brand of cards as well as through financial institutions. These cards are not as widely available around the world as other brands. American Express has some of the most expensive credit card fees out of all cards monitored by RateCity and offer a range of exclusive services.
Offers a range of credit cards that are available through a large range of financial institutions for both personal use, businesses and merchants. They also offer their customers access to pre-purchase tickets to concerts and gigs before they go on sale to the public as well as other exclusive offers.
Click here to watch the Credit Cards Brands video guide - along with the full credit cards step by step videos.
6. Picking the right card type
Depending on how often you plan on using your piece of plastic, will depend on what level of credit card will best suit you. There are three main levels of credit cards – standard, gold and platinum – so read on to help you decide which level is for you.
If you use your credit card sparingly, as a back-up or necessity for online booking, then you are most likely to have a standard credit card. This level of card is very basic and you usually don’t have a rewards program attached. The interest rate for these cards is also usually lower than the other cards.
Are you not quite in the big league of platinum spending but want more rewards than your standard credit card is offering? These are the mid-level cards which come with more features and services than the standard level, however the features may not be as high as the platinum level cards. For example, you may not receive as many reward points. The interest rate is higher than standard but often lower than platinum.
A few of the rewards offered with gold credit cards are automatic travel insurance for travel purchased on your credit card, free extended warranty and extra reward points every time you use your card to be redeemed for gifts, cash, travel or shopping.
Reality stars flash their platinum rings and musicians sing about splurging on their platinum cards. So why is platinum such a star-studded word and what does it mean in the land of credit cards?
The platinum credit card is regarded as the highest level of credit cards, where the interest rates are generally the highest in the market and often so are the annual fees. Along with the higher fees are usually bigger rewards. They usually offer more features and rewards than the other levels of cards including travel insurance, discounted hotel accommodation, and great rewards programs offering Frequent Flyer Points for every dollar you spend.
Click here to watch the Credit Cards Types video guide - along with the full credit cards step by step videos.
7. Finding the right credit card
Now that you’ve analysed your spending style and know what credit card features are important to you – it’s time to go shopping.
Don’t worry, this type of shopping doesn’t require any leg work. Kick back and navigate your way to RateCity’s credit card comparison page to find a great credit card. The best part is, there are no pushy sales people pitching their products and the credit card rates and features can be compared side by side. So take your time and pick the one that is going to work for you and meet your financial needs.
You can browse by the type of credit card and the level of cards as mentioned above, just pick your brands of choice then choose the level of card and the credit limit you have in mind. You can also apply online when you find one that best suits you.
And if you are a business that requires a credit card, our Business Banking section is specially dedicated to Small to Medium Enterprises (SMEs) where you can browse through the best types of cards to suit your business needs.
If you are considering applying for a credit card, below is a quick checklist of things you need to consider before you take the leap:
- What is the interest rate?
- Does the financial institution charge an annual fee? How much is it?
- What other fees do they charge?
- What credit limit would you be comfortable with? When it comes to the credit limit, choose a limit that you can pay off each month in full, otherwise you may get yourself into trouble and it could take you years to pay off.
- What type of card will suit me best?
- What level of card will suit me? Make sure you read the product disclosure statement (PDS) before you apply so you are aware of all the terms and conditions attached to the card.
Click here to watch the Credit Cards Checklist video guide - along with the full credit cards step by step videos.
9. Star Ratings
CANSTAR star ratings are a consumer-friendly benchmark that help you compare financial products based on their rates and features. We evaluate literally thousands of products from hundreds of finance institutions. Products offering superior value are awarded five stars.
Only the top 5% to 10% of products scored using the CANSTAR star ratings methodology are awarded the prestigious five star status. As a consumer, this is your guarantee of a high-performance product.
For more information on Star Ratings, check out our Star Ratings page