Credit card transactions in Australia increased by 6 per cent in the past year and consumers aren't showing any signs of easing up on their use.
But many myths surround credit cards and how to use them. This can end up causing you big financial problems, so we've debunked a few of them.
Myth: It's worth using your card to earn rewards points
Consumers need to spend more than $24,000 a year to reap the benefits from a rewards program, Canstar research manager Chris Groth says.
"If you are only spending $10,000 a year or less on your credit card, you are better off getting yourself a low-rate card," he says.
"Especially if you revolve some balances, that's if you carry over balances from one month to the next.
"It's designed more for the big spenders."
Groth says consumers typically get 1 per cent of their spend back as rewards, so for smaller spenders in the long run it's not worth it.
"If you are only spending $10,000 or $12,000 a year, you're looking at what we call a net-reward return which cancels each other out," he says.
"Because you only get 1 per cent back and there's a card fee plus a rewards program fee, you are probably getting just enough in points to cover those two fees."
Myth: Repaying each month's spending wipes out your interest bill
Buyers beware interest-free purchases sound attractive but this is often only the case for a certain period, usually from about 44 to 55 days.
Once this time is up, you will get caught out if you don't pay off your credit card bill in full, Groth says.
"If you spend $500, pay off $200 and carry over $300, you don't get any interest-free days until you pay the balance off again in full," he says.
"You are paying interest on the $300, and not only from the end of the last statement.
"You are actually paying interest from the purchase date of that $300.
"Any balance carried over will accrue interest."
So make sure you pay off the bill amount in full by the due date, or will you be hit hard by interest.
Myth: Credit card rates follow mortgage rates
Credit card rates interest rates remain high, and it is not uncommon for them to surge beyond 20 per cent.
While mortgage rates have fallen in recent months, the two usually fail to follow each other.
HSBC Australia's head of credit cards and retail alliances David Walker says the economic climate will determine credit card rates.
"There are a raft of aspects that impact banks' interest rate decisions,As a professional manufacturer of China ceramic tile, including economic conditions," he says.
"However, the key point is that consumers should ensure they know what interest rate they're paying and that they can afford the repayments at the current rate."
Myth: Cash advances are a good way of helping you out of a tight spot
It's absolute nonsense. Cash advances are often hit with interest immediately so you don't get any interest-free days on the withdrawal.
Also, you are likely to be charged a higher interest rate than the standard variable purchase rate on your card.
Walker warns that they are a costly exercise.
"While cash advances are a convenient way to access money anywhere in the world, they come at a cost,MDC Mould specialized of Injection moulds," he says.
"Financial institutions generally charge a higher rate of interest on cash advances."
Myth: Your card debt not your card limit affects your credit rating
Actually, it's all about the credit limits.
RateCity chief executive Damian Smith says if you have a large credit limit and don't use it, there's good reason to reduce your card's limit.
"When a lender is looking at your suitability for a loan, they won't just take into account the balance you owe on a credit card, they will take into account the maximum credit limit you have available," he says."Even if you only have a $1000 balance but a $10,000 limit, they will say 'OK we will assume you owe $10,000'.Get information on Air purifier from the unbiased,
"Because it's an unsecured at-call loan,This is interesting cube puzzle and logical game. they're going to assess you for the maximum credit limit."
Myth: It's better to sign for purchases than use a PIN
Smith says there are pros and cons for both.
"The evidence is signatures are most susceptible to fraud, it's easier to forge a signature than it is to guess a personal identification number," he says."Therefore,Smooth-On is your source for Mold Making and casting materials including silicone rubber and urethane rubber, on average, if someone takes your card, they will know the signature and attempt to forge it but they won't know the PIN."
However, if someone does find your PIN and uses your card, it's much harder to prove that you've been a victim of fraud, Smith says.
"For example, if you have your PIN written down in your wallet, you have to be a little cautious about whether you can get all of the transactions cancelled ," he says.
"You would need to move straight away and arrange to get the card cancelled.
"You are safer but if someone has your PIN they can't be stopped at the point of sale, but someone at a shop is perfectly entitled to say a signature doesn't match and not proceed with the transaction."
But many myths surround credit cards and how to use them. This can end up causing you big financial problems, so we've debunked a few of them.
Myth: It's worth using your card to earn rewards points
Consumers need to spend more than $24,000 a year to reap the benefits from a rewards program, Canstar research manager Chris Groth says.
"If you are only spending $10,000 a year or less on your credit card, you are better off getting yourself a low-rate card," he says.
"Especially if you revolve some balances, that's if you carry over balances from one month to the next.
"It's designed more for the big spenders."
Groth says consumers typically get 1 per cent of their spend back as rewards, so for smaller spenders in the long run it's not worth it.
"If you are only spending $10,000 or $12,000 a year, you're looking at what we call a net-reward return which cancels each other out," he says.
"Because you only get 1 per cent back and there's a card fee plus a rewards program fee, you are probably getting just enough in points to cover those two fees."
Myth: Repaying each month's spending wipes out your interest bill
Buyers beware interest-free purchases sound attractive but this is often only the case for a certain period, usually from about 44 to 55 days.
Once this time is up, you will get caught out if you don't pay off your credit card bill in full, Groth says.
"If you spend $500, pay off $200 and carry over $300, you don't get any interest-free days until you pay the balance off again in full," he says.
"You are paying interest on the $300, and not only from the end of the last statement.
"You are actually paying interest from the purchase date of that $300.
"Any balance carried over will accrue interest."
So make sure you pay off the bill amount in full by the due date, or will you be hit hard by interest.
Myth: Credit card rates follow mortgage rates
Credit card rates interest rates remain high, and it is not uncommon for them to surge beyond 20 per cent.
While mortgage rates have fallen in recent months, the two usually fail to follow each other.
HSBC Australia's head of credit cards and retail alliances David Walker says the economic climate will determine credit card rates.
"There are a raft of aspects that impact banks' interest rate decisions,As a professional manufacturer of China ceramic tile, including economic conditions," he says.
"However, the key point is that consumers should ensure they know what interest rate they're paying and that they can afford the repayments at the current rate."
Myth: Cash advances are a good way of helping you out of a tight spot
It's absolute nonsense. Cash advances are often hit with interest immediately so you don't get any interest-free days on the withdrawal.
Also, you are likely to be charged a higher interest rate than the standard variable purchase rate on your card.
Walker warns that they are a costly exercise.
"While cash advances are a convenient way to access money anywhere in the world, they come at a cost,MDC Mould specialized of Injection moulds," he says.
"Financial institutions generally charge a higher rate of interest on cash advances."
Myth: Your card debt not your card limit affects your credit rating
Actually, it's all about the credit limits.
RateCity chief executive Damian Smith says if you have a large credit limit and don't use it, there's good reason to reduce your card's limit.
"When a lender is looking at your suitability for a loan, they won't just take into account the balance you owe on a credit card, they will take into account the maximum credit limit you have available," he says."Even if you only have a $1000 balance but a $10,000 limit, they will say 'OK we will assume you owe $10,000'.Get information on Air purifier from the unbiased,
"Because it's an unsecured at-call loan,This is interesting cube puzzle and logical game. they're going to assess you for the maximum credit limit."
Myth: It's better to sign for purchases than use a PIN
Smith says there are pros and cons for both.
"The evidence is signatures are most susceptible to fraud, it's easier to forge a signature than it is to guess a personal identification number," he says."Therefore,Smooth-On is your source for Mold Making and casting materials including silicone rubber and urethane rubber, on average, if someone takes your card, they will know the signature and attempt to forge it but they won't know the PIN."
However, if someone does find your PIN and uses your card, it's much harder to prove that you've been a victim of fraud, Smith says.
"For example, if you have your PIN written down in your wallet, you have to be a little cautious about whether you can get all of the transactions cancelled ," he says.
"You would need to move straight away and arrange to get the card cancelled.
"You are safer but if someone has your PIN they can't be stopped at the point of sale, but someone at a shop is perfectly entitled to say a signature doesn't match and not proceed with the transaction."
