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What's new in credit cards for December 2020

Credit card debt has continued to fall across the country as Australian cardholders have been using their new-found savings - thanks to strict COVID-19 regulations - to pay down their debts. Debt levels are now sitting at their lowest level since 2004.

And more Aussies are also getting the scissors out and cutting up their cards, as the number of credit card accounts dropped by over half a million since the end of March. But this doesn’t mean we’re seeing the death of credit cards.

In fact, credit card issuers are getting savvy to our growing love affair with buy now, pay later platforms, such as Afterpay and Zip Pay. Two of the big four banks announced “no interest” credit cards this year, providing similar services as buy now, pay later platforms, such as tiered credit limits, no interest but monthly fees.

Despite a cut to the Reserve Bank of Australia’s cash rate at the start of November bringing interest rates to record-lows and held there with the final 2020 RBA meeting in December, credit card interest rates have remained consistent for the last few decades. This means that the only way you can give yourself a credit card rate cut is to shop around for a low rate offering. Or, if your biggest ongoing credit card costs are the fees charged by your issuer, you may want to consider some low, or no-fee credit card options.

Updated by Alex Ritchie on December 3, 2020

 

Credit cards vary wildly, and depending on what you want a credit card for, you may find one suits you better than others. Whether you’re a traveller, rewards points chaser, or big spender, it pays to do your research around which credit card could be right for you. 

What is a credit card?

Credit cards are a piece of plastic (like a debit card) issued by financial institutions that give the cardholder access to a line of credit for purchases. The amount of credit you have access to is called your credit limit, and you may be charged interest on any outstanding purchases made. 

Credit cards can be a helpful financial tool that allow you to make purchases when you don’t immediately have the funds. But they can also be risky if used incorrectly, and lead to credit card debt. 

Do I need a credit card?

Whether you need a credit card or not is determined by how you plan on using the card and your personal financial situation. There are a variety of credit card types with different benefits, such as travel cards with complimentary insurances, which can make life easier for the cardholder. But if you cannot afford to pay your balance off in full each statement period you may begin to accrue interest on your card. This means that if you are not in a financially stable place, or are prone to paying your bills late, a credit card may not suit you. 

Which credit card will suit me?

There’s no one-size-fits-all credit card. To know which credit card may suit you, you’ll need to look at your credit card spending profile. 

There are four main credit card spending profiles:

  • The habitual spender
  • The impulse/occasional spender
  • The everyday spender
  • The big spender

Take a look at your income, expenses and spending habits. Compare this to the different spending profiles in our Credit Card Guide, and also take into account how you want to use your credit card (to build rewards points, for overseas spending etc.). Then, using credit card comparison tools, you may be able to narrow down your search to find a credit card that suits you. 

Can anyone get a credit card?

No, not everyone will be approved for every credit card. It is easier to be approved for a credit card than some other forms of finance, like a home loan, as you don’t need to offer up a deposit to be approved. But you will need to meet credit card eligibility criteria, such as:

  • Being an Australian citizen or permanent resident
  • 18 years old or over
  • No history of bankruptcy
  • Meet minimum income requirements (can range from $10,000 to $1000,000 and higher for platinum and above cards)
  • Good credit rating

Credit card providers will assess your eligibility at different scales, depending on the type of card you’re applying for. For example, if you’re applying for a Titanium credit card and you don’t meet the minimum income required, your application is more likely to be rejected.

When applying for a credit card, you’ll need to provide the following:

  • Proof of income: salaries or wages
  • Proof of employment: two or more recent payslips
  • Photo ID (driver’s license, proof of age card or passport)
  • Additional assets and income (such as a savings account or managed investments)
  • Credit history
  • Tax file number
  • Details of any existing loans, such as personal loans, a lease or other credit cards
  • Recent tax returns, particularly if you’re self-employed

How much do I have to pay on my credit card?

All credit cards have minimum repayment requirements. These are usually a percentage of your total balance (2 - 3.5 per cent) due each statement period, but can be a dollar figure - usually around $20. It’s highly encouraged that you make more than the minimum repayment requirements, however, or it can take you years to pay off an outstanding balance.

For example, Mark has an outstanding credit card balance of $10,000 at an interest rate of 18 per cent. His card has a minimum repayment amount of $20 or 2 per cent (whichever is higher). If he only made minimum repayments to this debt, it would take him 43 years and 11 months to pay off his balance. However, if he made higher monthly repayments of $400, it would only take 2 years and 7 months to pay off his balance.

What type of credit cards can you find?

There's no shortage of cards to include in your credit card comparison. Your credit card choice will ultimately depend on what you want to use your card for, your financial situation, and the perks you may receive whenever you do. Whether you're a first-time cardholder or just shopping around for a new credit card, there are a range of credit card types available in Australia. Some of the most popular include:

Low rate credit cards

As the name implies, low rate credit cards are credit cards that come with competitive, low interest rates. They are able to keep rates down by not offering perks like rewards programs or high credit limits. If you’re looking for a no-frills option that’s theoretically easier to manage, consider a low rate credit card.

Keep an eye out for what rate the ‘low’ label applies for. A low rate credit card may have a low purchase rate, for example, but a higher than average cash advance rate. Make sure you read the key fact sheets for any credit card you may be interested in.

Low fee credit cards

Similar to low rate cards in that they’re designed to keep costs down, low fee cards often do not charge cardholders an annual fee, or may charge very few fees. Annual fees can range between $25 - $1,200, depending on the type of card. If you’re the type of cardholder who always pays their balance in full by the due date and never accrues interest, an annual fee may be the biggest cost you face. This is why it may be helpful to avoid paying an annual fee altogether.

Platinum credit cards

Unlike low rate credit cards, platinum cards are aimed towards Australians looking for high credit limits and extensive rewards programs. These premium cards can come with higher interest rates and annual fees. However, the idea is that those taking out a platinum credit card can afford these costs as they’re marketed towards those with higher incomes.

Balance transfer cards

If you have existing credit card debt, balance transfer cards can be a helpful debt management tool. This is where you transfer your existing credit card debt to a new credit provider, and your balance will be charged a balance transfer rate of zero per cent interest for a set period of time. This time frame is usually referred to as the balance transfer offer. This means you can concentrate on clearing your debt without being charged more interest on top of it.

The new card provider may charge a balance transfer fee. This is typically a percentage of the total balance you are transferring. Balance transfer fees can be a common occurrence, and worth factoring into your budget before applying.

Just remember that you’ll still be charged interest on new purchases, often straight away, without the benefit of interest-free days. If you get a balance transfer card, it’s advised that you put it in the freezer and focus on paying off your debt.

Rewards credit cards

Rewards credit cards are those that are attached to rewards programs. The dollars you spend on eligible purchases could earn you rewards points. Credit card providers may allow you to exchange these points earned on eligible purchases through the rewards programs for things like gift cards, home goods and electronics. They can also carry perks such as concierge services, VIP seating for events, airport lounge access and more.

You may also be able to earn bonus points upon signing up to a credit card. This is done to entice new customers to join with a card provider. A bonus points offering may be thousands, even hundreds of thousands of rewards points with your card provider's rewards program. To learn more about the rewards program spend criteria and eligibility, it's worth reading the card provider's product disclosure statement.

If you plan on using your credit card regularly, they can be a competitive choice. Consider how you plan to use your card and how closely this matches with the card’s rewards program. For example, if you regularly use your credit card at a local supermarket, you may want to consider a credit card that lets you earn points that can be redeemed at these shops.

Frequent flyer cards

One of the most popular types of rewards credit cards are those that offer frequent flyer points. It works similarly to rewards points, but you earn frequent flyer points instead based on the amount you spend on eligible purchases. They can be spent on flights or upgrade with major airlines. If you make regular plane trips for work or to visit family, or if you love to travel, this card type may suit you. They can also carry perks such as concierge services and airport lounge passes, as well as complimentary insurance, like travel insurance and car rental insurance.

Similar to rewards credit cards, you may also be able to earn up to hundreds of thousands of bonus reward points when signing up to a frequent flyer credit card. The type of points will depend on the frequent flyer program attached to the card. For example, Qantas rewards will offer bonus Qantas frequent flyer points.

Travel cards

For avid adventurers, there are credit cards designed with overseas travel and overseas spending in mind. Travel credit cards may carry some of the same perks as frequent flyer cards, such as complimentary insurance. They also typically come with no or low foreign transaction fees, such as foreign ATM withdrawal fees and currency conversion fees. They may also allow you to hold multiple currencies on your credit card.

What to look for in a credit card

Here are a few things to consider when shopping around for a credit card:

  • Credit card purpose: how do you plan on using your credit card? For everyday shopping or major purchases only? For buying overseas or travel? To transfer an existing balance? Narrow down your purpose so you can compare apples with apples.
  • Interest rates: credit cards can charge different rates for purchases, cash advances and balance transfers. Also, keep an eye out for introductory, promotional, or “honeymoon” rates that revert to a higher one after a period of time. Knowing what rates you may be charged before applying can keep you from growing debt.
  • Interest-free periods: the number of days you have to pay back your purchases before you’re charged credit card interest. The higher number of days, the more breathing room to make repayments. A typical interest-free period is around 44 days.
  • Rewards programs and extras: rewards card programs let you earn points on your everyday spending that can be exchanged for goods, transferred into frequent flyer points or may come in the form of cashback deals. Some credit cards also offer extras such as international travel insurance and purchase protection insurance. However, some extras may be as simple as not charging a fee for supplementary cards for additional cardholders. These programs and extras typically incur higher annual fees.
  • Card fees and charges: are there any extra costs, such as annual fees, foreign transaction fees, cash advance fees or charges for overseas purchases? Consider whether the credit card’s benefits would likely be worth these costs.
  • Credit card type: There are three main credit card types- Visa, MasterCard and American Express (AMEX). Visa and MasterCard are quite similar in that they are just payment processing systems, so they cannot issue cards directly to customers. Whereas AMEX is both a payment processing system and can issue its own cards. When making payments, Visa and MasterCard typically carry lower card fees than AMEX.

How do you compare credit cards?

Now you know the type of card you want, and the extras to keep an eye out for, it’s time to narrow down your options. The best way to compare credit cards is to do your research and use comparison tables.

Comparison tables are a helpful way to compare things equally, side by side. You can view a range of credit card options in a table that outlines some of the more significant costs and features. These include the purchase rate, annual fees, maximum interest free days and late payment fees. Filter down your options to create a short list of credit cards.

Once you’ve made a short list, it’s worth checking out the product disclosure statement for those cards. These are kept on the credit card provider's website. They offer more detail on the cards you’re interested in, such as a break down of all card fees and interest rates.

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Frequently asked questions

Can a pensioner get a credit card?

It is possible to get a credit card as a pensioner. There are some factors to keep in mind, including:

  • Annual income. Look for credit cards with minimum annual income requirements you can meet. 
  • Annual fees. If high fees are a concern for you, opt for a card with a low or $0 annual fee. 
  • Interest rate. Make sure you won’t have any nasty surprises on your credit card bill. Compare cards with a low interest rates to minimise risk.

How easy is it to get a credit card?

For most Australians, there are no great barriers to applying for and getting approved for a credit card. Here are some points that a lender will consider when assessing your credit card application.

Credit score: A bad credit score is not the be all and end all of your application, but it may stop you being approved for a higher credit limit. If your credit score is less than perfect, apply for the credit limit that you need, rather than the one you want.

Annual income: Most credit cards have minimum annual income requirements. Make sure you’re applying for a card where you meet the minimum.

Age & residency: You need to be at least 18 years old to apply for a credit card in Australia, and most require that you are an Australian citizen or permanent resident. However, there are some credit cards available to temporary residents.

What is a balance transfer credit card?

A balance transfer credit card lets you transfer your debt balance from one credit card to another. A balance transfer credit card generally has a 0 per cent interest rate for a set period of time. When you roll your debt balance over to a new credit card, you’ll be able to take advantage of the interest-free period to pay your credit card debt off faster without accruing additional interest charges. If your application is approved, the provider will pay out your old credit card and transfer your debt balance over to the new card. 

How do you use credit cards?

A credit card can be an easy way to make purchases online, in person or over the phone. When used properly, a credit card can even help you manage your cash flow. But before applying for a credit card, it’s good to know how they work. A credit card is essentially a personal line of credit which lets you buy things and pay for them later. As a card holder, you’ll be given a credit limit and (potentially) charged interest on the money the bank lends you. At the end of each billing period, the bank will send you a statement which shows your outstanding balance and the minimum amount you need to pay back. If you don’t pay back the full balance amount, the bank will begin charging you interest.

What should you do if your credit card is compromised?

Credit card fraud is a serious problem. If your credit card is compromised and you’re wondering what to do, here are a few precautionary steps to take.

Contact you credit provider – Get in touch will your credit card provider. If you feel your card has been compromised, you should be able to lock or block it.

Monitor your accounts – Keep an eye on your credit card accounts. Any unauthorised transactions could be a sign your credit card has been compromised.

Check your credit rating – It’s also important to check your credit rating, to ensure you’re not a victim of identity theft or some other financial mischief.

What should you do when you lose your credit card?

Losing your credit card is a serious situation, and could land you in financial trouble. Here is a simple guide detailing what to do when you lose your credit card.

Lock you card – Contact your provider and inform them about your lost credit card. From here lock, block or cancel your card.

Keep track of transactions – Look out for unauthorised credit card transactions. Most banks protect against fraudulent transactions.

Address recurring charges – If your card is linked to recurring charges (gym membership, rent, utilities), contact those businesses.

Check credit rate – To ensure you’re not the victim of identity theft, check your credit rating a month or two after you lose your credit card.

Should I get a credit card?

Once you've compared credit card interest rates and deals and found the right card for you, the actual process of getting a credit card is quite straightforward. You can apply for a credit card online, over the phone or in person at a bank branch. 

How do you use a credit card?

Credit cards are a quick and convenient way to pay for items in store, online or over the phone. You can use a credit card as a cashless way to pay for goods or services, both locally and overseas. You can also use a credit card to make a cash advance, which gives you the flexibility to withdraw cash from your credit card account. Because a credit card uses the bank’s funds instead of your own, you will be charged interest on the money you spend – unless you pay off the entire debt within the interest-free period. If you pay the minimum monthly repayment, you will be charged interest. There are many different credit card options on the market, all offering different interest rates and reward options.

How do you cancel a credit card?

It’s important to cancel your old cards to avoid any additional fees. Unless you’re doing a balance transfer, you’ll need to pay the outstanding balance before you cancel your credit card. If you’ve opted for a card with reward points, make sure you redeem or transfer the points before you close your account. To avoid any bounced payments and save yourself an admin headache, redirect all your direct debits to a new card or account. Once you’ve done all the preparation, call your bank or credit card provider to get the cancellation underway. Once you receive a confirmation letter, destroy your card and make sure the numbers aren’t legible.

How to get a credit card for the first time

A credit card can be a useful financial tool, provided you understand the risks and can meet repayment obligations.

If you’re a credit card first-timer, review your options. Think about what kind of credit card would suit your lifestyle, and compare providers by fees, perks and repayments.

Once you’ve selected a card, it’s time to apply. Credit card applications can generally be completed in store, online or over the phone.

When you apply for a credit card for the first time, you must meet age, residency and income requirements. As proof, you must also provide documentation such as bank account statements.

How do you apply for a credit card?

You can apply for a credit card online, over the phone or in person at the bank. Once you’ve compared the current credit card offers, the application process is quick and easy. Before you get your application started, you’ll need to gather your personal information like proof of ID, payslips and bank statements, proof of employment and details of your income, assets and liabilities. To be eligible for a credit card, you’ll need to be an Australian citizen over 18 and earn a minimum of $15,000 each year. Once you’ve applied for a credit card, you should get a response fairly instantly. If your credit card application has been approved, you should receive a welcome pack with your new credit card within 10-15 days.

How do I apply for a credit card online?

What's the best credit card for rewards?

There is no one-size-fits-all best rewards credit card. It's best you research what type of rewards program you'd like, as well as the fees, interest rate and conditions associated with those types of cards before making a choice. 

Rewards credit cards can also come with high annual fees that may end up nullifying the rewards, so think how often you use the card to decide whether the benefits outweigh the extra cost for you. A card with a lower annual fee might require a lot of spending to get any useful rewards, while another card with a higher annual fee might need fewer purchases to get a reward. 

How to pay a credit card

There are a few ways to pay a credit card bill. These include:

  • BPAY - allows you to safely make credit card payments online.
  • Direct debits - set up an automatic payment from your bank account to pay your credit card bill each month. You can choose how much you want to pay of your credit card bill when you set up the auto payments.
  • In a branch.
  • Via your credit card provider's app.

Which credit card has the highest annual percentage rate?

The credit card market changes all the time, so the credit card with the highest annual percentage rate is also liable to change.

Keep in mind that credit card interest rates are expressed as a yearly rate, or annual percentage rate (APR). A low APR is generally good but also consider:

  • There can be different APR's for each feature of the card (e.g. purchases may have an APR of 14 per cent, while cash advances on same card could have an APR of 17 per cent.
  • Credit cards with a variable rate can change throughout the year, affecting your APR, so check the full details.
  • If you pay your balance in full every month, having the lowest APR is not as important as the other fees associated with the card. However, if you carry a balance from month to month, then you want the lowest APR possible.

How to make a credit card online

If you’re wondering about how to make a credit card online application, here are some steps to follow:

  • Test the market. Many credit card options are available online. Compare providers by fees, interest and perks to ensure you’re getting the best deal.
  • Complete the application. Once you’ve selected a card, head to the provider’s website and complete the online credit card application form. Forms vary by providers.
  • Provide details. Most cards require you to meet age, residency, income and credit status condition, and you need to provide details like a bank account statement to prove this.
  • Review details. Ensure the information you’ve entered is correct.

Do you need a credit card to get a loan?

You do not need a credit card to get a loan, but you usually need to have a credit history. Without a credit history, a financial institution cannot assess your ‘credit worthiness’, or your capacity to pay off the loan.

If you don’t have a credit card, your credit history can reflect any record of paying off an asset. Without any credit credit history, you’re limited in the type of loans you can apply for. But you may be able to obtain a secured loan against an asset. For more information on improving your credit score, go here

How many numbers are on a credit card?

The numbers on your credit card actually follow a universal standard which is used to identify specific functions. Each credit card has a different amount of numbers. Visa and Mastercard have 16, American Express has 15 and Diner’s Club has 14. 

The first number on a credit card always identifies what type of credit card it is. Visa cards start with a 4, whereas Mastercard starts with a 5 and American Express with a 3. The remainder of the digits represent the account number, including the last number which is used to verify that your credit card is actually valid. 

Credit cards also have additional verification numbers, which are mainly used when the card isn’t present for phone and online purchases. These are the three-digit numbers on the back of Visa and MasterCard or the four-digit numbers on the front of an American Express card.

How is credit card interest charged?

Your credit card will be charged interest when you don’t pay off the balance on your credit card. Your card provider or bank charges you the individual interest rate that is associated with your card, which is usually between 10 and 20 per cent. 

The interest will be added onto your bill each month or billing period if you don’t pay off the balance, unless you are in an interest-free period.

You will be charged interest on anything that hasn’t been paid for inside the interest-free period. Usually you will receive a notice on your bill or statement saying you will be charged interest so you have some form of notice before you’re charged.

How to pay a credit card from another bank

Paying or transferring debt from one lender to the other is called a balance transfer. This involves transferring part or all of the debt from a credit card with one lender to a credit card with another. As part of the process, your new lender will pay out the old lender, so that you now owe the same amount of money but to a new institution.

Many credit card providers offer an interest-free period on balance transfers to help new applicants better handle their debt. During this period, cardholders are not required to pay interest on the debt they brought over from the other card. This can be a great opportunity for consumers to pay off credit card debt with no interest. There are often fees associated with balance transfers; normally, these are a percentage of the amount transferred.

So make sure you read the terms and conditions of the card before transferring any debt across.