How to choose a credit card
Find the best credit card for you
If you decide you need a credit card, it is important to choose the best credit card to suit your situation.
1. Should I get a credit card?
2. What is the best credit card for me?
3. Credit card fees and charges
4. Store cards
5. How to compare credit cards
Should I get a credit card?
Credit cards are a convenient way to pay for the things, but convenience can come at a cost. Research has shown that people often spend more when they use a credit card than they would if they were using cash.
Before you apply for a credit card, think carefully about why you want it, and how you will pay for it.
Avoid getting a credit card if you are using it to pay off other debts. The higher interest rate and other fees and charges may cost you more in the long run. Consider a no or low interest loan or talk to a financial counsellor if you are struggling with your finances.
If you're worried about spending too much, a debit card might suit you better.
What is the best credit card for me?
The kind of credit card you should get depends on how you want to pay off your debt. Credit cards have different features to suit different types of spenders.
Credit card interest free periods
If you always pay off your credit card in full each month, look for one that offers interest-free days. This means you pay no interest for a certain number of days after making a purchase (for example, 55 days).
These cards may charge higher interest rates and annual fees, but if you pay off your debt within the interest-free period, you'll avoid paying interest altogether, so the higher annual fee may be worth it.
No interest free period credit cards
If you know you won't be paying your debt in full straight away, consider a card with no interest-free days. You'll usually pay lower annual fees and less interest, either from the day of purchase or the day your monthly statement is issued.
Honeymoon credit card rates
Sometimes credit cards offer an introductory or 'honeymoon' interest rate. Check how much the interest rate will rise at the end of the honeymoon period, and what fees and charges come with the offer. A card with higher fees might wipe out your honeymoon savings before long. The same principle applies to offers of 'no fees for 12 months'.
How credit card balance transfers work
This is when you transfer your outstanding balance from one credit card to another, often at a lower interest rate for a certain time (for example, 4.9% for 6 months).
You can get the full benefit of this by paying off the balance transfer amount within the balance transfer period. Just make sure you check the interest rate that will apply once the balance transfer period is over.
If you use your new card to buy something, your purchase will usually attract the full interest rate of the new card (not the special balance transfer rate). It is a good idea to check how different credit card features may apply when you transfer your balance to a new card. For example, you may be unable to take advantage of any interest-free period on new purchases until the balance transfer amount is paid in full.
Payments you make on your new card could be applied to the balance with the highest interest rate (for example, purchases you made at the standard interest rate or cash advances at the cash rate, whichever has a higher interest rate). You could request your credit card issuer to apply your payments in a different way, for example, you could ask that any payments made during the balance transfer period be applied to the balance transfer amount, even if the interest rate is lower.
If you have not paid off the full balance transfer amount when the balance transfer period ends, the amount remaining will be charged at the standard interest rate or cash advance rate (which may be higher).
Check the conditions of your card to see what rate applies. Find out how paying just a little bit more off your card each month can save you interest with credit card calculator.
Cashback, discounts and reward schemes
Here are some other features to consider when you are choosing a credit card.
Credit cards with cashback
Cash back' credit cards give you back some credit on your account. But the benefits are quickly outweighed if the card has a higher than usual interest rate. If you don't pay the whole balance off each month, this kind of offer is not for you.
Discounts on goods and services
Some credit card providers offer discounts on goods and services purchased through their own or partner organisations. This can be a great way to save money on items you are likely to purchase, but you should check whether these savings will be outweighed by any fees or higher interest on the card.
Credit card reward schemes
Some cards offer points for every dollar you spend on the card. See reward schemes for more information
Credit card fees and charges
When you choose a credit card, check the fees and charges. These can add a lot to the cost of your card and can include:
1. Annual account keeping fees
2. Fees for reward programs
3. Fees for late payments
4. Fees for exceeding your credit limit (a card issuer must seek your consent before they can charge you for this)
5. International transaction fees
6. Cash advance fees (which are charged in addition to interest on cash advances).
Credit card purchases can attract a surcharge that some retailers will pass on to you. You must be adequately informed of any surcharge before you pay.
Where a surcharge is compulsory the retailer must clearly list the surcharge alongside the price. Where the surcharge is optional the retailer must clearly inform you of the surcharge and another way you can pay that avoids the surcharge.
Some large stores issue their own cards, which operate like regular credit cards but can only be used in that store, and have much higher interest rates. Store cards can be an expensive way to shop.
Before signing up for a store card, compare the interest rate with other types of credit. The benefits may not be worth paying a higher interest rate.
Be careful when you get a store card as part of an interest-free deal. You might pay more in interest than a regular credit card.
How to compare credit cards
Here are some tools you can use to compare the interest rates, fees, charges and features of credit cards to find the best one for you.
Key facts sheets
An easy way to compare cards is to use the 'key facts sheet' available from credit card issuers. These contain information on:
1. Minimum repayment
2. Interest rate that applies to purchases and cash advances
3. Interest rate that applies to balance transfers and for how long
4. Promotional interest rate (if any)
5. Length of the interest-free period (if any)
6. Annual and late payment fees (if any)
Some credit cards come with travel insurance. If this is something you think you'd take advantage of then find out if your provider offers it.
Credit card comparison websites
Comparison websites can be useful to compare the features and fees of credit cards, but they do have some limitations.