Credit cards are convenient. Particularly for shopping on the internet. That convenience comes at a cost.
Credit is not free money. It is a debt. In bank speak, it's known as “an unsecured loan”.
When you purchase an item using credit you are in effect borrowing the money from the provider. In return, the provider requires you to pay back the loan in a designated time with any interest charges it requires you to pay. This is the provider’s security.
The interest you pay, when and how much, is important to understand, especially at those times of year, such as Christmas and sales events, when you may resort to credit more. Through research, you can find which providers and cards offer deals. It is not a good idea to apply for a swag of cards and then decide which one you want to use. Why? Each time you apply for credit it is noted on your credit file and this can impact your credit score.
ASIC’s Money Smart site defines credit score as “a number based on an analysis of your credit file, at a point in time, that helps a lender determine your credit worthiness. It is used by credit providers, such as banks and credit unions, to help them decide whether to lend you money, how much they will lend you and may sometimes influence what interest rate is offered to you.”
For example, you may want to apply for a personal loan or a mortgage or a mobile phone account and the provider will take your credit score into account.
The positive thing about using credit cards to purchase things online is they offer you security as a purchaser, especially if you keep an eye on your transactions and contact your bank as soon as possible if you notice anything suspicious.
Westpac, for example, has a Fraud Money Back Guarantee. The guarantee ensures that you will be reimbursed for any unauthorised card transactions or errors, provided you have not contributed to the loss and contacted Westpac promptly. (Refer to your card’s conditions of use for full details.)
How does a credit card work?
The process follows these steps.
- The details of what you purchase using your card are sent from the retailer or service provider to your card issuer.
- The credit available on your card is reduced by the amount you spend.
- The details of the purchase are recorded on a credit card statement.
It’s a good idea to check the details of your transaction at the point of purchase before you authorise (by tapping, using your pin or signing).
It’s also important to check all your recorded purchases when you receive your monthly statement. If you believe there’s an error, contact your card issuer as soon as possible.
What appears on a credit card monthly statement?
Credit card statements are usually issued monthly. The statement helps you keep track of how much you owe and allows you to spot any errors in your transactions. It’s a good idea to check it carefully.
The information on your statement is likely to include:
- all the transactions and any refunds since your last statement date;
- any fees or charges;
- any exchange rate used and charges applied to transactions in another currency;
- the interest rate applying to different uses of the card;
- any added interest;
- the minimum repayment due;
- most credit card issuers offer a range of repayment options. These are usually listed on your statement
Here are three tips when it comes to paying your credit cards:
1) look at where you are going to be paying the most interest and pay that debt off first;
2) pay bills by their due date to ensure your credit score stays healthy. With your credit card, pay off more than the minimum;
3) try not to default on a payment. Call and speak with your credit or loan provider if you get into financial difficulty.
Can I get cash out on my credit card?
A cash withdrawal or cash equivalent transaction from a branch, ATM or internet using your credit card is known as a cash advance. Be aware that cash advances often incur an additional fee and interest is often charged from the time of the transaction until the full card balance has been repaid.
What happens in a balance transfer?
A balance transfer lets you transfer the balance from credit or store cards to another of your credit cards.
There are a few steps here.
- You can request a balance transfer by completing a balance transfer form. This form is usually available online at your relevant bank, or from branches or their relevant credit cards customer service area. Your request will undergo a lending criteria assessment.
- Once applications are received, they are usually processed after a few days, so check with the relevant bank, on the status of your balance transfer.
- Most banks will have a minimum that you can transfer on a balance transfer. The maximum amount is usually a set percentage of the available limit on the credit card to which you are making the transfer.
- Check with the bank if balance transfers have interest-free days or not. If they do not, this means that you will start paying interest from day 1 of the transfer.
What is a promotional offer?
Your credit card issuer may occasionally offer special promotional offers. For example, reduced interest on a portion of the balance, special rates on purchases at certain stores, etc.
If you participate in a promotional offer, interest charged on these purchases will be displayed separately on your statement.
Some promotional offers have no interest-free days. Ensure you check the specific promotional offer Terms and Conditions for details before going ahead.
How does tap and go work?
Tap-and-go payment is a capability incorporated into debit or credit cards allowing in-store purchases of up to $200 at a merchant that has a payment terminal. You just need to hold your card within 4cm of the terminal to approve the purchase and because it is below $200 you do not need to enter your PIN or sign. If the purchase is over $200, you can still make a contactless payment, but you'll need to enter your PIN or sign.
The option to use a Personal Identification number (PIN) or sign for credit card purchases has been around for a while now. If you’re using a PIN, simply press the 'CR' credit button and enter your PIN.
If you already have a card with a PIN, your PIN will not change. If you don’t know your PIN or wish to change your PIN, simply visit your financial provider with your card and some personal identification to change it.
The information above is general in nature. Always seek professional assistance to ensure that your decisions are appropriate to your personal circumstances and objectives.