Credit cards have a mixed reputation, and the reason for this is that they can be both good and bad; depending on how you use them. To help you decide if one might be right for you, here is our guide on when a credit card can save you money, vs when it might cost you.

 

The Good

Build your credit history

With the introduction of comprehensive credit reporting, every month you pay your card on time, it is reflected as a positive indicator in your credit history. This is especially good if you have not held a credit facility before, as it builds your profile as a reliable credit consumer.

Additional card holders

Not only can a credit card be a great source of emergency funds for you, it can help you ensure your loved ones are covered also. For parents of young adults heading out in the world for the first time, it can give you some peace of mind that you know they will always have access to some funds if they get stuck. Just remember, their spending
becomes your bill, so perhaps keep their limit low!

Overseas transactions

Credit cards are a great option when travelling, as they are accepted at millions of merchants worldwide. When you make purchases in foreign currencies, either in person or online, the currency is converted at the credit card company’s wholesale conversion rate, which is generally one of the more competitive conversion rates in the market. Just check what fees your bank charges on foreign transactions to ensure you are getting good value, as this varies.

Emergency source of funds

Provided you don’t max out your card limit, it is a great source of funds, available immediately 24/7 for those unexpected expenses.

Save money on your home loan

Really! This can be true. If you put your salary straight to your home loan or offset account and use your credit card for all your day-to-day spending, you can take advantage of the interest free days on the credit card and be charged no interest; provided you pay off your full monthly balance before the due date each month. Your salary then reduces the amount owing on your home loan until you redraw it to pay your credit card. So, each month you will save on interest. Just make sure your home loan has free redraw and you know the rules around your credit card’s interest free period to make sure this will work for you.

Fraud and theft protection

Credit cards have a lot of security attached to them, with credit card companies constantly investing in stronger security solutions. These can include being able to lock your card instantly through your banking app, real time fraud monitoring, and an easy process to dispute irregular transactions, as well as transactions where the merchant did not provide
the goods and services owed to you and refuses to accept liability.

 

The Bad


Lower your credit score

While a card can help increase your score, it can also damage it if you fail to pay your minimum monthly limit on time each month. Likewise, applying for one card facility is fine, but applying for multiple cards in a short-time frame is a red flag for banks that can also damage your score in the short-term. Just make sure you shop around for the card you want before you submit an application, rather than applying for lots of cards with a view to select your preferred one later.

Paying the minimum

The most critical thing with a credit card is keeping your maximum limit to a level you can afford and avoid owing the limit when possible. If you pay off only the minimum repayment owing on your credit card, even if you never spend on it again, it can take easily over 10 years to pay off the balance! In Australia, your statement must detail how long your balance will take to pay off and the interest you will pay based on only making the minimum repayment, so make sure you watch out for this.

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