Low-fee, annual fee, no-fee – the world of credit cards can be confusing. What are the features and costs you should use to compare credit cards?
The truth is there isn’t a single feature that is essential for everyone. Instead, you need to look at a number of factors.
1. How you use your card
The best way to start the process of comparing credit cards is by looking at your financial habits.
You can then use these to think about what you want from a credit card.
Big spenders who use their card regularly for small and bigger purchases may want to take advantage of credit cards with rewards programs or a higher credit limit.
But people who only use their card once in a while, or for emergencies, may be better off with a card without annual fees and a low interest rate.
And if you’re looking to consolidate your credit cards, you may benefit from a 0 per cent balance transfer offer.
The possibilities are endless and any decision should fit your finances, rather than leaping into an attractive introductory offer.
2. Rewards and extras
When comparing credit cards, you’ll quickly learn that the more you’re willing to spend, the better the rewards.
There are two common types of credit card rewards: cashback and points.
Credit cards on the lower end of the spectrum usually offer a small percentage, often around 1 per cent, of cashback or basic points on purchases.
Cards on the higher end of the scale tend to offer a higher percentage on cashback and specialised point benefits, including specific categories for travel, dining and entertainment.
These cards typically come with a higher annual fee, so make sure these are features you’re definitely looking for and you can afford the fee.
3. Credit card fees
Annual fees are a set once-a-year payment covering the maintenance of your account.
Some credit cards don’t charge a fee, but others can charge as much as $450 or more annually.
Ideally, your card benefits and rewards should make up for the annual fee of your card.
If that’s not the case, a lower or no-fee card may serve you better.
There are other fees to keep an eye on with credit cards, including:
- balance transfers fees
- cash advances fees
- overseas transaction fees
- late fees
- returned payment fees.
If you don’t plan on using some of those services, then you may be less concerned by a high annual fee.
Alternatively, if you know that you can occasionally miss a payment or travel a lot, you might want to look for a card with lower penalties.
4. Interest rates
The most common credit card interest rate is applied to your purchases. However, credit cards usually have more than one interest rate.
Cash advances or balance transfers come with their own interest rate, so it’s important to know what type of transactions you’re intending to make before deciding on a card.
If you’re planning on paying off the full balance each month, a higher interest rate on purchases might not concern you.
If you tend to pay off your balance over a longer period, a lower interest rate may benefit you more, as you incur fewer additional fees.
Remember, even big credit card rewards won’t compensate for a high interest rate.
Best way to use credit card points
The ideal way to use your credit card points is to be on a rewards system that complements your needs – that way, you’re more likely to actually use them.
Everyone is different, but if you’re getting a lot out of the rewards system and it’s saving you money elsewhere, you’re probably on the right credit card for you.
However, when talking dollars for point value, there are clear winners and losers.
That’s because there are some credit card rewards points that have better value than others.
‘The Points Whisperer’ Stephen Hui, founder of iflyflat.com.au, told the Australian Financial Review that points spent on flight fares often represent the best point value.
Mr Hui counts gift cards and household items among the worst value, because the required spend to reach these points often doesn’t justify the value of the reward.
But if you don’t tend to fly much, a new blender might do just fine.
Examples of credit card rewards
Although you might earn rewards through cashback, the points system is where some credit card users can really feel they’re getting value for money.
With gift cards, airline miles, experiences and more, there are plenty of rewards for you to choose from.
Some credit card lenders offer other benefits, such as:
- rental car insurance
- airport lounge access
- roadside assistance
- 0 per cent interest over 16 months or more for certain purchases.
Can you use two credit cards effectively?
While it’s not unusual to own more than one credit card, it’s important to keep on top of your repayments to avoid messing up your credit score.
Using two credit cards effectively can be done – it just comes down to knowing which card will benefit the situation you’re in.
For example, if one card offers complimentary travel insurance, it makes sense to use it to book your next holiday.
If you have a card that offers lower-rate international transactions than the other, remember to use that one next time you buy something from overseas.
It can help to keep a list of all your cards and their features, including:
- when the next annual fee is due (if any)
- interest rates
- payment due dates
- current balance (if carried over)
- any details on your rewards programs and other benefits.
If you have trouble remembering different payment due dates, you can also talk to your credit card provider and request to change your dates to sync with a day that suits you – that way, you only have to remember one due date instead of two (or more).
Alternatively, most providers also allow you to sign up for payment notifications/reminders on your smartphone as well as setting up a direct debit to your savings account. Just make sure you have sufficient funds available when it matters.
This article originally appeared on compareclub.com.au, which offers a credit card comparison service, and is republished with permission.
YourLifeChoices is part of Compare Club Media.
Do you regularly check that you have the best credit card for you? Is that difficult? Share your thoughts in the comments section below.
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