Credit Card Guide
So you have decided to get a credit card. Whether this is your first or your fourth credit card or you are in the market for a balance transfer card to consolidate, the RateCity Guide to Credit Cards will show you what you need to consider. 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.
Things to consider when applying for a Credit Card
Credit Card Guide
- 1. Spending Profiles
- 2. Interest rate
- 3. Rewards
- 4. Credit card features
- 5. Card type
- 6. Picking the right level card
- 7. Finding the right credit card
- 8. Checklist
- 9. Star Ratings
1. Spending Profiles
Credit cards are generally used as an additional financial source to purchase goods and services. Your spending habits determine the frequency of your card use and when you repay the balance. Listed below are four main spending profiles which show you what type of card will best suit you and help you to save at the same time.
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 only use your card for emergencies and occasional spending, such as at sale time and holidays, use the following couple of months paying off the balance and try to find a low rate card with a very low or no annual fee.
If you use your card for regular purchases such as groceries and fuel and you pay off your balance each month, then you won’t be as concerned about interest rates as you will be about the features and fees of the card. You will need to find a card that provides the features and rewards programs you're interested in and will get the most out of at the lowest cost.
If you’re a high income earner who spends a lot of money on your credit card each year and always pay 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.
When comparing credit cards online at RateCity, you will notice that most cards listed are given a star rating out of five, with five being the best value for money and quality. This can help you decide on which financial institution and credit card is the best value for you.
2. Interest rate
Once you know what level of card matches your spending personality, you will need to decide what type of card you will benefit from the most. Below are some types of cards available:
Low rate cards have a low interest rate and usually have an annual fee. They are the "no frills" cards on the market because of their limited features and service’s that other types of cards offer and typically don’t have any rewards programs attached. Low rate credit cards are great for those types of spenders who don’t pay off their balance each month and require a low interest rate so they pay less in interest charges.
If you are the type of credit card user who pays off their credit card balance each month then you aren’t really affected by the interest rate. You will be more interested 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. They generally have 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 want to get more out of your credit card, then perhaps you should consider a card that has a rewards program attached, where there are incentives for making purchases. There are a range of different types of rewards programs available including:
Frequent Flyer rewards
Each time you pay for something using your credit card, you will receive Frequent Flyer reward points that can be redeemed towards Qantas flights anywhere in the world. This type of rewards program is great for those people who are frequent travelers or for businesses whose staff travel frequently.
Everyone loves money don’t they? 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.
If you like travelling you can use your credit cards to earn yourself points and redeem for holidays to places you have always dreamed of. 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.
For each dollar you spend you are allocated a certain amount of points to go shopping for a wide range of items such as toasters, kettles, golf sets and more.
Use your points to receive gift cards for a range of outlets such as Myers and David Jones.
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.
4. Credit card features
Below are some main features of credit cards that may differ between each credit card provider. Make sure that you are aware of these features before applying.
Balance transfers benefit those who have one or more credit card 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. 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.
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 and leave enough time for funds to transfer.
5. Card type
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.
6. Picking the right level card
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.
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.
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.
This 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. Platinum cards usually offer more features and rewards than the other levels of cards.
7. Finding the right credit card
Once you have a better idea of what type of card is best for you and what features you will need, you are ready to start shopping.
RateCity allows you to compare credit cards online in the comfort of your own home. There is no pressure from any financial institutions to choose their credit card and you can take your time browsing through each one in detail so that you feel comfortable knowing you have made the right choice.
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.
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