Ultimate guide to credit cards

Why get a credit card | How to apply | Different types of credit cards | Which card is best | Fees | Credit vs debit | Pros and cons of credit cards | Good credit Bad credit |  Paying your bills | How to use a credit card effectively | Understand the jargon

Navigating the world of credit cards can be tricky, especially if it’s your. first time exploring. First things first, it’s important to understand what getting a credit card actually is. Credit cards give you access to a line of credit from the bank. When you pay on plastic you’re actually borrowing money from the bank to cover the purchase until you pay it back at statement time. There are alldifferent types of credit cards with different features and benefits to suit all sorts of spenders. In this guide we’ll go through everything you need to know so you can be well informed.

Why get a credit card?

People get credit cards for a range of different reasons; to track business spending, to earn rewards, to consolidate debt and much more. If you use them wisely they can be a great way for you to get financial freedom, build good credit and (fingers crossed) come out with a host of rewards you can cash in – so to speak! If you’re a sensible spender, and always pay your bills in full on time there are certainly ways to use credit cards to your advantage with a plethora of rewards to benefit from. A few reasons to get a credit card include:

Building credit

If you want to buy a house someday or take out a loan, you might be refused without having a credit history. Getting a credit card is a good way for you to start building a credit score.

Rewards for your spending

Who wouldn’t want some rewards in return for your everyday spending. Complimentary travel insurance, frequent flyer points, vouchers, lounge passes, concierge services and more are all features of typical credit cards.

Sign-up bonuses

Always dreamt of playing blackjack in The Bellagio. Viva Las Vegas! Sign up bonuses that come with credit cards can get you one step closer to hitting the jackpot.

Consolidating debt

Found yourself with a spiralling amount of debt – moving the balance of all your cards onto one with 0% balance transfer and 0% p.a lets you avoid paying interest for a specific amount of time allowing you to pay back the balance quicker.

Financial freedom

Credit cards can provide that peace of mind knowing you have access to a line of credit should an emergency strike. As well, if you have a no, or low interest card you can buy now and pay back over time without taking on any extra debt.

Protection

Have peace of mind knowing you’re protected should you be a victim of a scam or fraud. The vast majority of credit cards on the market cover security and fraud protection, keeping your money safe from fraudulent purchases. As well, many cards offer price protection insurance and purchase protection insurance.

How to apply for a credit card?

Applying for a credit card should be simple-enough. It won’t take long to complete an online form and get results of your application fairly quickly. Of course this all depends on credit history, how much you earn,  and a few other eligibility requirements that may apply. Here’s some tips if you’ve never applied before:

Compare credit cards

It’s important to get a clear idea of what different cards are out there to make sure you’re getting the right card for you. Compare features, rewards, and interest rates as a minimum.

Apply online

Once you’ve found the card, it’s time to click through to the bank’s website and apply online. Before you do so, make sure you read the terms in full to make sure you understand all the conditions

Get your details ready

To apply for a credit card you’ll need to provide the bank with some information about yourself and your financial situation…

Personal details

Include your title, full name, date of birth, marital status, any dependent children, your driver’s licence or Medicare card number, residency status and contact details.

Employment details

Include details of where you work and what you earn.

Expenses

You will need to list your rental or mortgage agreements, as well as living expenses such as energy bills and groceries.

Liabilities

You will need to list all of / any other credit cards or loans you may have.

Decide what features you want

During the application, you can select what features you want like credit limit, balance transfer or additional card holders.

Review and submit your application

Like many purchases, you get to review your application before pressing submit. Make sure you take the time to thoroughly check all your details are right to avoid any disappointments. Once submitted, you may be given an answer within a minute or you may be required to provide more information. You may be approved, conditionally approved or declined.

Getting your card

Once approved, your card will usually arrive within a week which will require activation before it can be used.

Credit card application eligibility requirements

Not every Tom, Dick and Harry can get a credit card, although it might seem that way these days. Before you apply, make sure you’re eligible.

How old are you?

You need to be at least 18 years old to apply for a credit card in Australia.

What is your residency status?

A lot of cards are only available to citizens and permanent residents of Australia.

How much do you earn

Some of the more premium cards have a minimum income requirement.

Do you have a credit score

You’ll generally need a good credit score to get approved for a credit card, but not in all cases

Different types of credit cards

Big spender or cautious economizer, there’s a card out there for all sorts of shoppers.  

Type of card	Pro	Con
0% on purchases	Good if you want to make a big purchase and wish to pay it back slowly over time.	Interest rate reverts to normal after the introductory period. You will be charged interest on any purchases you haven’t yet paid off.
No annual fee	Good for low spenders who are not bothered by rewards and just want the flexibility of a bit extra cash that they can pay off in full each month.	Annual fee may only be waived for the first year. Can have higher fees due to lack of card fee.
Rewards	Get all the perks from paying with plastic. Good for high spenders looking for rewards from their everyday spending.	No point paying for the higher fees if you’re not going to utilise all the features.
Frequent flyer	Good for frequent flyers looking to earn airmiles on everyday purchases redeemable with linked airline program.	Covid restrictions inhibiting travel. Make sure you fly with the airline the points program is linked with. High interest rates  and high annual fees apply.
Balance transfer	Good for those wanting to pay off their balance quicker by consolidating debt into one card with little or no interest.	Balance transfer fees may apply. Low interest period will end. Annual fee may be higher on balance transfer cards.
Low interest	Reduces chances of spiralling into debt with a low rate on any new purchases.	Interest is still charged- just at a lower rate. If your goal is to reduce your debt, a 0% balance transfer card might be a better option.
Foreign currency	No foreign transaction fees when you spend overseas. Most come with complimentary travel insurance.	You may still pay a withdrawal fee to the ATM operator. High interest rates and high annual fees.
Student	Develop credit history and free up some money to spend on necessary supplies with low interest rates and low credit limits.	You are choosing to get into debt at a young age which could lead to early problems with spending if you don’t have a sensible payment plan.
Business	Manage employee cash flow in one account with multiple cards.	Additional card holder limits. Credit limit fees should your business go over it’s agreed limit
Premium credit cards	Good for big spenders wanting high credit limits and lots of rewards.	High interest rates. Income eligibility requirements. High annual fees.

 

Which credit card is best for me?

The Aussie credit card market is competitive to say the least with a heap of banks and other financial institutions offering lines of credit. The big four banks in Australia are NAB, Commbank, ANZ and Westpac, but even if you don’t bank with these, all financial institutions are regulated in the same way. Visa, Mastercard, American Express, which is best? Choosing a payment network is another thing to consider with your card. Generally, MasterCard and Visa are pretty similar, and American Express tend to carry higher fees but better rewards. Individual banks issue Visa and MasterCard branded credit cards, whereas American Express reserves the ability to issue its own cards. While American Express cards can be tempting, they’re typically more expensive to own and use and you’ll find that some merchants don’t accept Amex, or charge a fee for the privilege.

Costs of credit cards

Credit cards aren’t free- banks make money from interest on credit card accounts. Of course there are cards with no annual fees and no interest rate for a period of time which you can use to your advantage. But at the end of the day there are a few costs associated with credit cards that you should be aware of before signing up.

Interest payments:

Credit cards charge you interest for purchases, cash advances and balance transfers that you spend and don’t pay off each month. Rates vary from card to card but tend to be between 11-23%. If you pay off your statement each month, you won’t be charged anything for using the card.

Annual fees

Most cards are not free, an annual fee of anywhere from $20-$1000 dollars might be charged, depending on what type of card you’re after. Some people don’t mind the higher fees, feeling like they’re getting the cost of the card back in rewards. Generally speaking you shouldn’t pay a fee just for the privilege of having the card in your wallet.

Late payment fees

Listen to your mum and pay your bills on time. The cost varies by issuer, but federal regulations limit how much late fees can be. As of 2018, first-time late fees were capped at $27; and fees for a second late payment within six months were limited to $38. Late fees also can’t cost more than the minimum payment due.

Balance transfer fees

Generally, balance transfer credit cards charge 3% to 5% of the amount of debt transferred. Some cards waive the fee when you transfer debt within a certain time frame.

Foreign transaction fees

Most cards add a surcharge of 1% to 3% on transactions made with non-U.S. merchants. Travel credit cards generally don’t charge these fees, and some issuers don’t charge them on any of their cards.

CURRENT FEATURED SNIPPET ON PAGE ONE OF SERPS.

Testimonial

The pros and cons of credit cards:

Pros

• If you’ve got a big purchase to make or a bill to pay but don’t have the cash in the bank, a credit card can give you the money you need. You can then pay it back straight away or over time.
• Credit cards are easy to use when you’re shopping in-store, online and overseas. As well as an actual card, many options also offer mobile payments. Credit cards also come with multiple layers of security and fraud protection, so your money is safe even if something happens to your card details.
• Using a credit card can give you “something for nothing”. As long as the rewards you earn are more valuable than the cost of any interest and annual fees, credit cards can be a great way to get cashback, merchandise, frequent flyer points and more.

Cons

• Credit cards are an easy way to get into debt if they are not managed properly. On top of spending money you don’t actually have, credit card interest costs add up quickly if you don’t pay your balance back in full.
• Cost of borrowing. Compared to some other loan products, credit cards are relatively expensive. The average interest rate for an Australian credit card is about 17% and the annual fees can eat into your budget on some of the more premium cards.
• Some businesses add a surcharge to credit card payments to cover the cost of processing. These surcharges are becoming less common but where applied, will usually add between 1% – 2% to the total purchase cost.

Credit vs debit

A debit card is linked to your checking account; debit card purchases automatically pull money out of your account. You’re using your own money to pay for things rather than borrowing it. Some debit cards earn rewards, but they generally pale in comparison to credit card rewards. Debit cards also have weaker fraud protections. A prepaid debit card isn’t linked to a checking account; instead, you “load” money onto the card, and you can only spend as much as you’ve loaded. These cards often charge many fees you wouldn’t pay with a regular debit card. Prepaid debit cards offer some protections, and they come with limitations. For example, some prepaid debit cards don’t offer ATM access or mobile banking. Also, not all merchants accept them. Neither debit cards nor prepaid cards will affect your credit scores, because using them does not involve borrowing money. Only a credit card will affect your credit score.

Good credit / bad credit

Use them unwisely, and your credit can suffer, which affects your ability to borrow money in the future.  Understanding how credit cards work will help you choose the right cards for you, manage them well and save money.

Paying your bill

When your bill comes, you have the option of paying a certain minimum amount, paying the whole balance in full, or paying some amount in between. Paying just the minimum every month is ultimately the most expensive option, since it will cost you the most in interest. Paying in full is the best option; when you pay in full each month, you get a grace period that allows you to avoid paying any interest on purchases at all. Your credit card issuer reports your payments to the credit bureaus, the companies that prepare credit reports. Your payment history counts for 35% of your credit score – a three digit number that indicates how risky it would be to lend you money. You must pay at least the minimum by the due date every month to avoid late fees and potential damage to your credit score.

How to use a credit card effectively

The benefits of using a credit card responsibly outweigh the costs. Here are some good practices to adopt:

• Pay your bill on time and in full every month
• Keep your balance below 30% of your available credit
• Wait at least six months between credit card applications
• Review your account online weekly to track spending and avoid fraud
• Keep no-annual-fee credit cards open and active to avoid hurting your credit score

Using a credit card responsibly is an easy and efficient way to establish healthy credit. You’ll be thankful that you did so when you’re able to borrow affordably in the future.

Jargon

Credit limit:

This is the maximum amount of funds you’ll have available on your card. You can request a credit limit or have the issuer offer you a credit limit. The lender will determine your credit limit based on your request and your current financial situation.

Balance transfer:

If you want to take advantage of a balance transfer with your new card, you may need to request it when you apply for your new card. You’ll need to list the issuers of the current credit cards and accounts of which you wish to balance transfer. This includes the respective card numbers and how much you want to balance transfer from each account.

Additional cardholders

You can share your credit card with a partner or family member by adding them as an additional cardholder during the application. To add a secondary cardholder, you will need to share their details, including their full name, date of birth and any other requested information.

FAQ’s

How much credit can I get?

When you’re approved for a credit card, the bank authorizes a credit limit – the maximum amount you can borrow – to be used at your discretion.

Your credit limit will depend on such factors as your income, your other debts and how much available credit you have on other cards.

General Advice Warning

The information provided is of a general nature only and does not take into account any personal objectives, financial situation or needs. Before making a decision you should consider the appropriateness of the information having regard to your personal circumstances. Always read the full terms and conditions.