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What to Look For In Credit Cards

Just as every bank account offers different features, services, and rates - most credit cards differ in what they have to offer to their users. Whether it be the credit limit, interest rate, interest free period, or the accompanying rewards program - selecting a credit card is a task you should allocate some time for.

So, what should you look for in a credit card? Well, this somewhat depends of your spending habits, financial situation, and preference for low cost versus high service cards. In the following article, we will investigate the main features of credit cards, and explain the options you have when choosing one. Having read this information, you should be able to make an educated decision as to which card is best for you.

Card Features / Types.

One of the most obvious differences between all the credit cards out there is the features each card offers. Some cards come with this, some with that, and some with nothing at all. Therefore, there is plenty of opportunity to find a card which suits your requirements down to the ground.

The first thing on our list to look out for is the type of card. There are three main international credit card providers, which are:

- Visa
- Mastercard
- American Express

Even though you will probably apply for a credit card through your local bank branch, the card itself will be sponsored by any one of these 3 companies. What is the difference between them? Well, to be perfectly honest - not a lot.

Here in Australia, Visa and Mastercard are the most popular choices for consumers. Because of this, the two card brands are readily accepted at most stores, restaurants, and shops. American Express however is a little less common (although still very much a popular choice), and this is reflected in the number of stores which accept the card brand.

One thing to note is that just because a retailer accepts Visa and Mastercard, it cannot be taken as a given that they accept American Express also.


Policies / Rules.

Credit cards can be an excellent form of payment - especially when you don't have access to cash at a particular moment in time. Don't think, however, that credit cards will offer you an unlimited source of cash for your every want and desire.

Just as banks have rules on how you can handle your money - credit card providers also impose restrictions on the amounts you can borrow, the time you have to pay it back, and the service charges which apply for the use of their facilities.

Therefore, when selecting a new credit card, ensure that these policies fit in with your own personal situation. To give you an indication of what is considered "standard" when it comes to the factors above, here is a quick guide:

Average Time to Pay Back: 30 days approx.
Average Annual Card Fee: $50.00 approx.

Based on those two statistics, you should be able to benchmark any card offerings you come across, and hence assess their appropriateness.

Hopefully by now you have some idea of the types of things to look out for in credit cards.

MHow To Save On Credit Card Bills:

Ok, so you went a little overboard with a recent shopping trip (which turned into more of a "spree" than anything else), and now you have to face the reality of your actions thanks to the recently arrived credit card bill. We've all been in this situation, and it's certainly not the most pleasant feeling.

But even if you did "lose control" of your spending for a brief period, it's certainly not the end of the world, and it certainly doesn't have to turn in to a financial disaster. The good thing about credit cards is that they can be "managed" in a way that is both cost efficient, and productive. In other words, it is possible to reduce your debt gradually over time, without being hit by soaring interest rate charges or fees.

Here is a guide on how to minimize your credit card bill, whilst moving forwards with your finances and getting the outstanding amounts paid off.

Understanding Credit Cards.

To be able to manage credit card debt successfully, you first need to know how credit card fees and interest are calculated. Don't worry - this won't be a tedious mathematics lesson - just a general explanation.

Credit card companies make most of their profit in 4 ways. They are:

1. Merchant Fees
2. Interest Charges
3. Payment Penalties
4. Annual Fees

Thankfully, consumers don't have to worry about merchant fees whatsoever, because these are imposed on the stores accepting your credit card for the payment of products and services.

The other 3 items, however, are all potential charges to you - the cardholder.

Interest charges begin to apply once a particular amount of money has been outstanding for more than the "interest free" period, which is usually 30 - 55 days after you make a purchase. Payment penalties are charged when you do not make the required payment on your account before a specified date. Finally, annual fees are the costs you pay for holding the credit card active, and are usually billed once or twice per year.

Knowing this information, we are now able to look at ways of reducing credit card bills, by reducing the extent of these factors.

Interest Charges.

One of the best ways of ensuring that your credit card bill doesn't get out of control is to simply pay off your monthly spending, before the end of the "interest free" period. For example, if you make a purchase on January 1, you could have until February 25 to pay the amount off, without incurring an interest charge.

Check with your card provider for the exact "interest free" period. Also, note that withdrawing cash from credit cards (known as a cash advance) is NOT an action covered by the free period, ie. interest charges start on the same day as your withdrawal.

Payment Penalties.

Do NOT ignore your credit card bill! If you don't make at least the minimum payment on time, you will be slapped with a hefty payment penalty. Additionally, prompt payment may even qualify you for a discount.

Getting Rid Of High Interest Credit Cards:

As you will no doubt have heard time and time again, credit card interest is one of the most toxic expenses that you can incur. Despite the convenience and ease with which you are able to apply for and use credit cards, falling behind on payments and letting amounts build up could ultimately lead you down a one way road to disaster.

Yes, that was a fairly gloomy introduction - but when it comes to credit card interest, there simply isn't any better way of putting it. The reality is that for a number of people, monthly interest charges are indeed the reason why they cannot recover from their dire financial circumstances.

So, if you own a credit card, and are indeed clever or lucky enough to still be above the water level, let's take a closer look at high interest credit cards and attempt to find a few ideas to keep you out of the murky depths.

What Is The Interest Rate On Your Card?

Do you actually know what the interest rate is on your credit card? Something around 20 percent? Last time you checked it was 15.00 percent or so? Not good enough. Credit card interest rates change regularly - and we are not just talking about 0.10% here and there. Fluctuating rates can move between 1.00% and 3.00% instantly! That may not sound like much, but when you sit down and calculate it - it sure is.

If you don't know what the interest rate is on your card, try to find out. It should be listed on your most recent credit card statement, along with any intended changes that will take place over the coming months.

If you find that the applicable rate is above 20.00% - and you are being charged interest on amounts outside of your "interest free" period, you may wish to use a clever facility called a "balance transfer". What is this? Read on.

The Power of Balance Transfers.

Obviously, the best way to eliminate your credit card interest bill is to pay the outstanding amount off. Sometimes, of course, this is just not possible or practical. If this is the situation you find yourself in, and you are being hit constantly with horrendous interest charges, a balance transfer could be an excellent idea.

Basically, a balance transfer is where you sign up for an entirely new credit card - either through the same bank or a different one - and move your outstanding balance from the old card to the new one.

At first, this may seem pointless - but do hear us out. The thing is that many card providers will offer you a special "balance transfer" deal when you first apply for the new credit card. The interest rate charged on this amount will usually be below 10.00% for the first 6 to 12 months. This means that over the course of a year, you could save up to 10 or 15 percent in interest alone!

This is called smart money management, and it is a great idea for getting rid of that high interest credit card.

Understanding Credit Card Terms:

If you are a new credit card user, or even if you are considering applying for a credit card, some of the terminology used in application forms, websites, and brochures may prove to be a bit confusing. This is certainly not your fault, and can easily be solved by a few definitions and explanation.

That's exactly what we will be doing in this article. Below are three of the most common credit card related terms, followed by a detailed explanation of what they actually mean. After familiarizing yourself with these, you'll be well on the way to becoming a credit card expert!

Credit Card Terminology.

1. Credit Limit.

All credit cards have something called a credit limit. This will be an amount quoted in your introduction pack, and is specific to you - the cardholder. Basically, it represents the maximum amount that you can have outstanding on your credit card at any one time. If you attempt to go over the credit limit, your transaction will decline.

Example: Your credit limit is $1,000, and you currently have $900 outstanding (to be paid) on your credit card account. If you attempt to put a further $200 charge on this card, the transaction will decline, because your limit only $1,000.


2. Interest Free Period.

Most credit cards come with something known as an "interest free period". This is a good thing, and can be used to your advantage.

The interest free period will be quoted as a figure which represents the number of days you have from the time of a particular purchase, to the time when interest will begin to accrue on that amount.

Example: Your interest free period is 30 days. You make a purchase for $100 on January 1, and do not pay off this amount until February 15. In this situation, you have borrowed money for 45 days, however you only pay interest for 15 days, because of the first 30 days are interest free!


3. Minimum Payment.

The reason why many people rack up an uncontrollable credit card debt is because they do not understand this simple term. On the monthly credit card statement, there will be a figure quoted next to a term "minimum payment".

This amount is usually 5% or 10% of your total credit card balance.

Here is the important part. The minimum payment is NOT the recommended payment, nor the "best amount" to pay. It is certainly not the "optimum" payment for a particular period. Instead, it is the bare minimum that is required on the account to ensure that penalties are not incurred.

Unless you absolutely cannot afford it, you should always pay more than the minimum (if not the entire) amount to reduce interest expenses, and keep your credit card debt at a manageable level.

Budgeting Your Credit Card Purchases:

For some strange reason, consumers seem to have a very bad (or should we say "lax") attitude towards credit card spending and budgeting. Despite people running strict and tight budgets for their day to day expenditure and income, the credit card is one of those accounts where charges tend to "slip" in - often leading to a higher balance than we intended or desired at the end of the month.

Of course, to money managers and financial experts, this doesn't come as a surprise. Interestingly, credit cards are marketed to have this exact effect, and the "convenience" and "ease" of using the credit card is certainly a contributing factor.

But what if we were to tell you that budgeting and monitoring the spending on your credit card is as easy as simply including a provision for it in your personal budget? Just because your credit card may be registered with a different bank, come fully equipped with a generous loyalty program, or have a lengthy interest free period - you still need to manage its use!

Here are some helpful tips to ensure you don't encounter those mounting and toxic debts which are so common with uneducated credit card users.

Keep An Eye On That Balance.

Most of us have the internet at home these days - or at least have ready access to the internet when we need it. If not, don't let your boss catch you reading this article during work hours!

On a more serious note though, the internet is an exceptional tool which can be utilized not only for informational purposes, but also for financial management purposes. Indeed, it can and should be used to consistently monitor your credit card balance.

But the internet can equally be a hindrance to successful financial planning. Yes, you guessed it - it's that thing called online shopping. Putting credit card fraud and identity theft aside (no doubt you've heard all about it), online shopping is one area where people tend to loose control of their spending.

This is especially the case with "trial" offers and subscriptions, and repeat orders. To get past the possibility of recurring subscriptions, hidden charges and the like - make sure you READ the terms and conditions of your internet order, as well as double checking exactly what it is that you're buying.

These simple steps will save you from inadvertently blowing out your newly created credit card budget, as well as saving you cold hard cash.

Be Sensible.

If you know deep down that you're an impulsive spender (and many of us are!), try to exert some self control on your credit card spending. Before making a purchase, think back to the feeling you got last time you saw the outstanding balance on your account. This should be enough to generate a "think twice" approach in the future.

Getting A Credit Card With Bad Credit:

Having bad credit can certainly make it much harder to get a credit card these days, however it's not impossible. In fact, it may actually be far easier than you were expecting. "Really?", I hear you asking? Well, if you read the following information, and use the tips and tricks included in the paragraphs to follow, you could be well on your way to securing a new credit card with very little hassle or stress.

The first thing you need to understand is that not all "bad credit" is the same. Yes, the term is bandied around as an umbrella phrase for identifying people who "didn't pay their debts", however in reality, things are a bit more involved than this.

We like to split the term "bad credit" in to two distinctive categories. They are:

1. Really Bad Credit
2. Not Very Bad Credit

Yes, this does sound a little funny, but do let us explain.

Really Bad Credit.

This term applies to individuals who have been unfortunate enough to default on "financially related" debts. By this, we mean the following:

- Mortgages
- Personal Loans
- Hire Purchases
- Credit Cards

If you have defaulted on any of the above types of debts, you are unfortunately a member of the "really bad credit" group (when it comes to a credit card application). The chances of getting a credit card through a bank will be very slim if you are included here - and as a result, an alternative approach is called for.

Banks are certainly not the only financial institutions which are able to issue new credit cards. Finance companies, building societies, and credit unions may also offer such a service - with their own type of card. If you have are someone with really bad credit, try applying outside of the usual "big bank" group.

Of course, you still have to be honest about your financial status, and a credit check is unavoidable. But if you can prove that you're able to control your expenditure and ultimately repay any credit card debt your have in the future - there is a good chance your application will be approved.

Not Very Bad Credit.

This second term applies to people who have the following types of entries on their credit record:

- Unpaid parking fines
- Unpaid utility bill
- Other low value entries (not financially related)

Let's take the example of Mr Bloggs, who recently refused to pay a parking charge and hence had the amount slapped against his credit record. The key difference between this country, and another - eg. America, is that we work off a record rather than a "score".

That requires people to actually look at your credit history, and hence ensure that they see what it actually was that you defaulted on.

In reality - Mr Bloggs will have no problem getting a credit card the traditional way, because Australian banks couldn't care less about unpaid parking tickets. Therefore, people with "not very bad credit" should be absolutely fine.

The Case Of The Falling Credit Card Limit:

Most people who own a credit card believe that their credit limit can only ever go in one direction - up. They happily spend their way through the day, often putting a few items here and there on the plastic, and eventually stop when the credit card limit is reached. Instead of stopping there, the first thing most people would do would be to call the credit card company and ask for a credit limit increase.

The good news is - most of the time you'll get it. The not so good news? Your call for an extension may actually result in the complete opposite. Worse still, a credit limit reduction could come out of the blue, at a time when you least expect it.

Given the financial state of the world at the moment, lenders are nervous and consumers are heavily in debt. These two opposing forces certainly do not result in a healthy and joyous equation. If a lender gets the slightest hint that you could be close to defaulting on a credit card payment, you may find yourself on the receiving end of what is called a "risk contraction".

Not Worth The Risk.

A risk contraction is basically a term used to describe an individual or company which takes action to mitigate and limit risk that they were once happy to bear. In other words, what was once a "normal" level of risk may now be an "unacceptable" level, given the change in economic or financial conditions. This is exactly what is currently happening thanks to the credit crunch / financial crisis of 2008 - 2009.

Banks and credit card providers, which were once happy to lend out generous amounts of cash, are now tightening the reins as more and more people find themselves walking the financial plank.

Spare Me!

So, are credit card companies actually allowed to reduce your credit limit? Surely this seemingly rude gesture is completely illegal, and represents a breach of kindness on the service providers behalf?

Unfortunately not. When you signed that "terms & conditions" booklet on the credit card application form, you agreed that the credit limit of your card can be altered at the providers will, literally any time they like.

Additionally, if you were to continue reading further down, it goes on to say that your entire account can be terminated with absolutely no notice, and in the event of such an occurrence, you would be required to pay any outstanding amounts within "X" number of days.

All of a sudden that modest credit limit reduction doesn't seem to bad does it?

Perhaps a reasonable approach to this potential issue, given the economic environment at present, would be to mitigate your own level of risk. Ensure that if an adverse action is taken by your credit card company, you won’t have to put your assets up for immediate sale to repay the amounts you owe.

Getting More From Your Credit Cards:

With such a vast selection of credit cards to choose from these days, banks are constantly battling each other to win over new consumers / users. A rewards system (commonly known as a loyalty program) is a key feature on many credit cards these days.

But what actually is it, and how can you - as the consumer - use it to your advantage? After all - any "rewards" system is likely to be heavily weighted in your favour. Here is a general guide as to what a loyalty scheme is, and how you could possibly benefit from participating in one.

Spend More, Earn More.

Almost every credit card rewards program in existence at the moment works off the basic philosophy that: the more you spend on your credit card, the more rewards you earn. This is a very simple strategy to ensure that people will put as much of their general and fixed expenditure on their credit cards as they possibly can.

Does it work? You bet it does! And with the further ability in many rewards programs, whereby the cardholder is able to convert their earnings to credits in a different loyalty program - who wouldn't be enticed!

The "spend more, earn more" ideology has worked very well for credit card companies, and will no doubt continue to be the main feature of rewards programs in the future.

The Joke's On The ... Company.

Whilst the underlying message that credit card companies are trying to portray in offering a loyalty program (spend as much as you possibly can!) may be for their own good, there is actually a way that you can use such a scheme to your advantage.

By indeed "falling for" the card company's marketing ploy - whilst at the same time understanding that they want you to spend as much as you possibly can - you are actually able to come out better off yourself.

Think about it for a moment. You are going to have to pay for the phone, electricity, and grocery bills regardless of whether you have a credit card or not. Therefore, if you choose to place the charge through on a card - then swiftly pay the amount off with the funds you would have used, you have just earned rewards points for a transaction which would have occurred anyway!

It's all about financial management and wisdom. By playing the credit company's own game - and winning - you are the one coming out ahead. Is this actually legal? Of course it is! Thousands of people, all of whom have the knowledge detailed above, do this on a daily basis. And why wouldn't they? After all, the credit card company is still happy that you are spending money through their cards. Of course they would prefer to charge you interest - but even if they don't get the chance to, at the end of the day, they are still earning a generous profit.