Credit Cards Guide, Step 1 of 7, Usage

Credit Cards Guide - Step 1 of 7 - Usage

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.

To view your next credit card steps, click through from the list below;

Credit Cards Guide – Step 2 of 7 – Interest
Credit Cards Guide – Step 3 of 7 – Rewards
Credit Cards Guide – Step 4 of 7 – Features
Credit Cards Guide – Step 5 of 7 – Brands
Credit Cards Guide – Step 6 of 7 – Type
Credit Cards Guide – Step 7 of 7 – Checklist

 

 

Did you find this helpful? Why not share this article?

Advertisement

RateCity

Money Health Newsletter

Subscribe for news, tips and expert opinions to help you make smarter financial decisions

By signing up, you agree to the ratecity.com.au Privacy & Cookies Policy and Terms of Use, Disclaimer & Privacy Policy

Advertisement

Learn more about credit cards

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.

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.

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.

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.

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.

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. 

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. 

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.

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.

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.

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 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 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.

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.